ANGL: Longer-Term Yields Pressure Q3 Returns, but Yields Reach the 80th Percentile

Key Takeaways

• Fallen angels underperformed broad high yield by 1.14% in Q3, and by 0.73% YTD as higher bond yields impacted duration-sensitive assets
• Four fallen angels entered the index, adding 7.38% of market value
• The fallen angel yield of 7.73%^* sits at the 80th percentile, even as spreads remain tighter than historical averages
  

  ^* Index yield to worst

Fallen angels underperformed the broad high yield market by 1.14% in Q3 2026 (-2.95% vs. -1.82%), driving YTD performance negative as of quarter end (-0.69% vs. 0.04%). Fallen angels underperformed broad high yield every month in the quarter with September lagging by 0.80% amid relentlessly higher yields and volatility in the bond market, with the 10-year rising nearly 100bps to 5.29% from 4.30%. Fallen angels’ naturally longer duration (due to these bonds being issued with an investment grade rating) was the top detractor, erasing the outperformance versus broad high yield through August month-end. With rates this high, the forward setup may continue to rest on carry. At a 7.73% index yield to worst and ~$7 price gap to broad HY, fallen angel yields are elevated following rate driven weakness.

2026 Year-to-Date Total Return

Source: ICE Data Services, VanEck. As of September 30, 2026. Fallen Angels: ICE US Fallen Angel High Yield 10% Constrained Index.; Broad HY: ICE BofA US High Yield Index. Not intended as a recommendation to invest or divest in any of the sectors mentioned herein. Past performance is no guarantee of future results. Index performance is not representative of fund performance. It is not possible to invest directly in an index.

Fallen Angels Overall Statistics

Credit spreads widened sharply in the last weeks of September driven by elevated rate volatility and by the escalating conflict in the Middle East. Spreads widened across the board with fallen angel spreads finishing the quarter at 260bps from 237bps, while broad HY widened 37bps (from 275 to 312). With widening spreads, a steepening yield curve and the 10Y US Treasury reaching 5.29%, fallen angel yields ended the quarter at 7.73% (a 101bps increase from Q2), elevated vs. the 2024–2025 period, though exceeded by the 8.58% reached in October 2023. Fallen angels’ yield did not even reach this level on Liberation Day (April 2025). The dichotomy between spreads and yield is that fallen angel yields are sitting on the 80th percentile while spreads are just shy of 15th percentile. All of which is due to the risk-free component being roughly 66% of total yield. When rates continue to dominate yield composition, Treasury yield movements become the dominant driver of total returns and may continue to do so as spreads remain tight.

Fallen angel's par-weighted price decreased $4.77 in Q3 (from $91.68 to $86.91) vs. $3.22 for broad high yield (from $97.11 to $93.89). Duration was relatively flat for fallen angels while broad high yield had an uptick from 3.01 to 3.28 years. The 1.30-year duration differential was a meaningful driver of relative performance as the 10-year Treasury yield increased approximately 54bps in September and 99bps in the third quarter. The $6.98 price gap reflects a meaningful dislocation.

Source: ICE Data Services, VanEck. Fallen Angels: ICE US Fallen Angel High Yield 10% Constrained Index. Broad HY: ICE BofA US High Yield Index. OAS refers to “option-adjusted spread.” Please see definition for this and other terms referenced herein in the disclosures and definitions portion of this blog. Not intended as a recommendation to invest or divest in any of the sectors mentioned herein. Past performance is no guarantee of future results. Index performance is not representative of strategy performance. It is not possible to invest in an index.

Fallen Angels

Four fallen angels entered the index in Q3, pricing in idiosyncratic weakness rather than systematic credit deterioration. Coty (entry $98.13, down ~3% over previous six months) was the sole issuer to enter in July after S&P downgraded it to "BB+" from "BBB−", as its net leverage will likely increase after the sale of its Gucci Beauty license to Kering for $400M. Electronic Arts (also down ~3% over previous six months) entered in August after being taken private in a $55 billion leveraged buyout led by Silver Lake, Saudi Arabia's Public Investment Fund (PIF), and Affinity Partners. Fitch and Moody's withdrew their ratings while S&P rated it below investment grade, as its leverage will likely increase following the buyout. September brought Flowers Foods (down ~4%) and Leggett & Platt (down ~3%) over the previous six months. All three agencies downgraded Flowers Foods following weak Q2 results and reduced full-year guidance driven by pressured household budgets and intensified competition. Leggett & Platt followed as rating agencies reflected elevated leverage from Somnigroup's acquisition financing and subsidiary integration.

Source: ICE Data Services, VanEck. As of September 30, 2026. Fallen Angels: ICE US Fallen Angel High Yield 10% Constrained Index and Broad HY: ICE BofA US High Yield Index. Not intended as a recommendation to invest or divest in any of the sectors mentioned herein. Index performance is not representative of strategy performance. It is not possible to invest in an index.

Rising Stars

No rising stars in Q3 2026. See year-to-date rising stars below.

Source: ICE Data Services, VanEck. As of September 30, 2026. Fallen Angels: ICE US Fallen Angel High Yield 10% Constrained Index. Not intended as a recommendation to invest or divest in any of the names/securities mentioned herein. Past performance is no guarantee of future results. Index performance is not representative of strategy performance. It is not possible to invest in an index.

Fallen Angels Performance by Sector

Sector composition changes in Q3 reflected the new entrants. Consumer Goods, Media, and Capital Goods all saw their exposure increase by at least 2 percentage points while Autos and Basic Industry decreased as bonds fell below the 12-month maturity threshold and were removed.

After widening 60bps in Q1, tightening back 68bps in Q2, fallen angels spreads widened by 23bps in Q3. Most of the widening occurred in the last week of September after spending most of the quarter range-bound in the 220-240s. Five sectors saw spreads tighten in the quarter while the majority widened, with Telecom increasing 83bps, Real Estate 62bps and Autos 43bps. All sectors posted negative total returns in Q3 and saw prices decline, with Telecom having the worst total return at −7.30%, followed by Consumer Goods and Media. Though still negative, the top performers were Banking, Financial Services and Auto.

In terms of relative performance vs. broad high yield for Q3, Financial Services, Leisure, and Insurance were the top contributors in Q3 but their average exposure in the quarter was just a combined 9%. Top detractors were Media, Retail and Consumer Goods, with a combined exposure of ~29%. Within Media, Paramount, the largest exposure in the index at 10%, saw its price decline to $74.84 (an approximate 4% decline from its entry price). Paramount has been front and center in the last weeks of September following the launch of new bonds to finance the Warner Bros. acquisition, with 10-year notes priced in the low 9% area. The new issuance experienced meaningful spread widening relative to market expectations, reflecting credit deterioration alongside the sharp rise in longer-term yields. Paramount's outsized weight in the fallen angel index combined with both duration sensitivity (it is longer duration than the index and rates were up 99bps since entry) and credit-specific headwinds hurt the index's return. This is an example of the contrarian approach the index has taken over the years.

Source: ICE Data Services, VanEck. As of September 30, 2026. Returns are based on partial period data. Fallen Angels: ICE US Fallen Angel High Yield 10% Constrained Index. Not intended as a recommendation to invest or divest in any of the sectors mentioned herein. Past performance is no guarantee of future results. Index performance is not representative of fund performance. It is not possible to invest in an index.

Fallen Angels Performance by Rating

BB-rated bonds continue to dominate the fallen angel index at ~85% of market value at September end, up slightly from June, while single-B exposure decreased to 12%, which continues to be a structural overweight relative to the broad high yield ~61% BB exposure, which is the highest the broad high yield index has ever been. CCC-rated bonds have been the top performers within the fallen angel index so far this year with a 7.93% return, a significant difference vs the CCC-rated and below index whose YTD return stands at -3.44%. The CCC-rated and below index has seen its spreads widened to 1,179 at the end of September from 970 at the end of June.

Source: ICE Data Services, VanEck. As of September 30, 2026. Fallen Angels: Fallen Angel High Yield 10% Constrained Index. Not intended as a recommendation to invest or divest in any of the sectors mentioned herein. Past performance is no guarantee of future results. Index performance is not representative of fund performance. It is not possible to invest in an index.