"Fallen Angel" Bond Investment Strategy

Under the background of great downward pressure on domestic economy,capital market is also under great pressure.Since 2013,our bond exchange market has begun to show signs of recession.Some enterprises due to the industry downturn or nonproficient management ability lead to the deterioration of the profitability.Then credit rating agencies downgraded their credit rating or publish some reports calling credit rating outlook to be negative.However,in 2016,the trend of worsening of bond defaults accelerated,industries were in a downward trend,and corporate engagement continued to deteriorate with rating being downgraded again.The occurrence of some special credit events causes that the credit risk and liquidity risk of the bond rose,and the bond price got lower.The continued selling of bonds by investors led to further price falls,leading to some credit bonds became "fallen angels" of our bond market.Looking for "fallen angel" can be the breakthrough of potential high return opportunities,provides new ideas for bond market investment.In this paper,first of all,through the study of high-yield bond market and the American market high yield special type "Fallen Angel" and their development course,main characteristics,and differences as well as the US "Fallen Angel" ETF funds,introduced relevant concepts and characteristics to China's bond market of high-yield bonds,seeking for "Fallen Angel" of our bond market.On the basis of the understanding of "Fallen Angel" and the present researches,set conditions to filter in the bond market to get the preliminary screening results.Then discusses the investment value of these selected bonds by the five characteristics to further approach the "Fallen Angel" bond investment targets.Successful locate 85 bonds in the market and combined with relevant characteristics,including the specific industry factor and the extent of the adjustment of the bond subject in a particular period,then sort out the representative "12 Orient Zirconic bond" as an example for "Fallen Angel" bond investment strategy and its feasibility and profitability.In this way,provide innovative investment ideas for China's high-yield bond market and explore the future development of high-yield bond.By the case of 12 Orient Zirconic bond,we get the following conclusions:(1)Through the investment return of using the first bond credit rating downgrade or the investment return of using the second bond credit rating downgrade are both able to obtain higher return than the average return of the high-yield bond market returns.(2)The investment return of using the first bond credit rating downgrade will achieve a higher return comparing to the investment return of using the second bond credit rating downgrade.