Angel Bond - Explained
What is an Angel Bond?
Written by J. Mance Gordon
Updated at April 23rd, 2024
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What is an Angel Bond?
An Angel Bond is an investment-grade bond issued by companies with high credit ratings.
How Does an Angel Bond Work?
The credit ratings of angel bonds vary. They can be rated AAA, Aaa, BBB, and Baa. Angel bonds that have AAA and Aaa ratings have high ratings, while those with BBB and Baa ratings have the minimum investment-grade rating. The S&P 500 and Fitch uses AAA and BBB while Aaa and Baa are used by Moodys.
There are multiple factors that affect a bonds rating, such as the performance of the bond and the financial status of the company that issues it. It is possible for a bond originally issued with an investment-grade rating to be downgraded to a junk bond if it falls below the investment-grade minimum rating. These angel bonds are known as "Fallen Angels". The credit rating assigned to a bond indicates its credit quality level as well as its credit risk. Typically, independent rating services and agencies assign credit ratings to bonds to avoid biases and other issues that might arise. The financial strength of a bonds issuing company is also considered when awarding the credit rating.