Rising Stars are a Bright Spot in 2022

November 16, 2022 | Eddie Arrieta, Research Associate

Two-column chart numbers of rising stars and fallen angels yearly. Chart subtitle: The number of rising stars has outweighed the number of fallen angels so far this year. Chart visual description: X-axis years begin in 2011 and continue annualy through 2022 YTD (November 2022). Y-axis ranges 0 to 60. Each year has a column for rising stars in light blue and a column for fallen angels in dark teal. Chart data description: In 2022 YTD category, both columns match 2021’s counts, with 26 rising angels and 10 fallen angels. 2020 represented a peak for the period shown in fallen angels, with 51. Peak for rising stars was in 2014 at 39. For all years shown except 2016, 2017, and 2020, there were more rising stars than fallen angels. Chart source: J.P. Morgan, Moody’s Investors Service, S&P as of November 4, 2022. End chart description. See disclosures at end of document.

While 2022 has been an exceptionally challenging year, with both equities and fixed income down meaningfully, there are a few bright spots within the high yield space. The number of rising stars, which are below investment grade securities (high yield) that have been upgraded to an investment grade rating, has already hit 2021 levels with two months remaining in the year. Fallen angel securities — previously investment grade businesses that have fallen to high yield or “junk bond” status — remain relatively low. The increase in rising stars over the last two years comes after a big increase in fallen angels in 2020, and has been driven in part by a recovery in economic activity following the pandemic and better financial discipline of management teams. Many companies used the period of incredibly low interest rates to shore up balance sheets and push out debt maturities. A company’s credit rating changing from high yield to investment grade is significant, especially when facing a slowdown, as it allows the company to better access funding in the capital markets. The number of rising stars is a good trend in credit and quality overall in high yield has improved. Paired with the most attractive yields in years, the forward outlook looks promising in credit.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Eddie Arrieta
Research Associate

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