The developments in credit markets since 2000 have shown that a disciplined approach to minimize risk is necessary. This includes the determination of stop-loss marks which have to be defined on a caseby- case basis. Important is the volatility of the particular bond and the risk profile of the portfolio. Aportfolio with a high-yield benchmark will be able
to take the highest volatility but a buy-and-hold strategy is also not compatiblefor such a portfolio if a specific bond has to suffer a huge price loss.
The price mechanism of Fallen Angels and high-yield bonds requires disciplined stop loss marks. Fallen Angels tend to trade on very wide levels prior to a downgrade in high yield but a downgrade will usually induce another sell-off in the bonds so that a significant price fall will occur.
Besides fundamental facts, technical factors play an important role and current risk appetite of investors determines basically a floor for the Fallen Angel. If new buyers arise upswings in price can be significant, supported through positive credit news.
This entry was posted on Tuesday, November 24th, 2009 at 4:04 pm and is filed under business, credit score, get out of debt. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
