Fallen Angel

"A Fallen Angel (FA) is a corporate, or sovereign, bond downgraded from Investment Grade (IG) (minimum rating of BBB- with S&P, Moody’s or Fitch) to a High Yield credit rating (of BB+, or below with S&P, Moody’s or Fitch). Thus, the downgrade from Investment Grade (IG) to High Yield (HY) is far more significant than a downgrade for a bond staying within the same asset class. FAs tend to have higher credit-beta than other HY issues as a result. Given the distinct nature of the two asset classes, even the risk of an issue leaving the IG universe can cause advance selling of the bond, because an active IG portfolio manager wishes to avoid being caught with a sub-IG holding. An indexed IG fund has no choice but to sell the FA. These factors may be compounded by institutional investors over-reacting to the bad news of the downgrade".

Source: https://www.lseg.com/content/dam/ftse-russell/en_us/documents/research/fallen-angels-us-credit-market.pdf