El-Erian Sees 'Fallen Angels' as Biggest Follow-the-Fed Risk

The video discusses the Federal Reserve's influence on the investment grade market, highlighting the risks of credit downgrades and the emergence of 'fallen angels.' It examines the current market success, with increased issuance in both investment grade and high yield markets, and the potential risks involved. The roles of the Fed, companies, and investors are analyzed, emphasizing the importance of understanding different market segments and the limitations of generalizing trends across asset classes.

What is a 'fallen angel' in the context of investment-grade companies?

• A company that has been acquired by another firm

• A company that has been downgraded to high yield

• A company that has been upgraded to investment grade

• A company that has defaulted on its debt

What recent trend has been observed in the investment-grade market?

• A decrease in weekly issuance

• A decline in investor interest

• A stabilization of credit risk

• Record weekly issuance

How does the Fed's strategy impact different segments of the market?

• The Fed selectively supports certain market segments

• The Fed only supports high-yield markets

• The Fed avoids supporting any market segments

• The Fed supports all market segments equally

Why are companies issuing a lot of debt despite hard earnings prospects?

• To increase their creditworthiness

• To take advantage of the current liquidity window

• To prepare for a quick earnings recovery

• To reduce their overall debt obligations

What should investors be cautious about when considering high-yield or equity markets?

• Assuming all asset classes are equally supported by the Fed

• Believing that high-yield markets are risk-free

• Relying solely on company earnings reports

• Expecting immediate earnings recovery