30/11/18

The Cracks Appear: A Record $90 Billion A-Rated Bonds Downgraded To BBB In Q4



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The Cracks Appear: A Record $90 Billion A-Rated Bonds Downgraded To BBB In Q4
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Having written about it for over a year, it sometimes feels like the topic of "fallen angel" bonds, and the danger they present to the broader credit market and overall economy has been beaten to death (see most recently"The $6.4 Trillion Question: How Many BBB Bonds Are About To Be Downgraded").

But what if the market is focusing on the wrong tier when it comes to the upcoming downgrade deluge? What if instead of BBB credits, whose downgrade risk is, or should be, largely priced in by now (although the recent plunges in GE and PG&E bonds leave many questions unanswered) the real risk is just above the pre-fallen angel tier.

That's the point made by Goldman Sachs overnight, which argues that while some of the "BBB risks" warrant close monitoring, the bank's credit analysts "continue to struggle to see any recent developments that would make BBB-rated bonds a canary in a coal mine."

To support their claim that BBB is not the time bomb many others claim it is, Goldman shows that BBB spreads have moved largely in line with their A-rated peers, while demonstrating that BBB bonds have not been an outsized source of weakness in IG.

The bank's assessment is that in the ....

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