## Figure 1.12. Potential Fallout from the BBB Bond Downgrades on the US High-Yield Corporate Bond Market

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**Canonical URL:** [Figure 1.12. Potential Fallout from the BBB Bond Downgrades on the US High-Yield Corporate Bond Market](https://www.imf.org/-/media/files/publications/gfsr/2019/april/english/ch1data/charts/figure1-12.pdf)

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### Key observations from the figure
- The widening in corporate bond spreads in late 2018 was driven by higher risk premiums.
- Market-based estimates of potential downgrades to high-yield bonds are within a range implied by rating agencies.
- Waves of downgrades are not uncommon, tend to be led by certain sectors, and are not necessarily associated with recessions.
- There are approximately $200 billion in BBB-rated bonds trading closer to high yield than the BBB curve.

### 1. Decomposition of High-Yield Spreads (Percent)
- Chart title: "1. Decomposition of High-Yield Spreads (Percent)"
- Axis/label numerics present in the figure: 0, 5, 10, 15, 20, 25, 1998, 2000, 2002, 2006, 10, 14, 18, 13, 5, 7, 9, 11, 13, 15, 17, 19, 21, 23, 25, 27, 29, 31, 33, 35

### 2. BBB Corporate Bond Option-Adjusted Spread versus Spread Curve (Basis points)
- Chart title: "2. BBB Corporate Bond Option-Adjusted Spread versus Spread Curve (Basis points)"
- Axis/label numerics present in the figure: -100, 100, 0, 200, 300, 400, 500; and -5, 0, 5, 10, 15, 20, 25; years or markers: 1998, 2000, 2002, 06, 10, 14, 18, 13, 5, 7, 9, 11, 13, 15, 17, 19, 21, 23, 25, 27, 29, 31, 33, 35

### 3. Potential Downgrades from BBB-Rated Bonds to High-Yield Bonds (Billions of US dollars; par values)
- Chart title: "3. Potential Downgrades from BBB-Rated Bonds to High-Yield Bonds (Billions of US dollars; par values)"
- Scenario labels and numerics appearing in the figure: "Using one-year rating transition matrix"; "BBB– bonds on negative outlook"; "BBB bonds closer to BB curve"; numeric markers: 0, 50, 100, 150, 200, 250, 300, 350

### 4. Downgrade Rates of US BBB-Rated Bonds to High-Yield Bonds (Percent)
- Chart title: "4. Downgrade Rates of US BBB-Rated Bonds to High-Yield Bonds (Percent)"
- Time/series markers and numerics present in the figure: 0, 5, 10, 15, 20; years or markers: 2000, 02, 04, 06, 08, 12, 16, 10, 14, 18; labels: "Long-term average"; "Energy-related shock"; numeric markers shown: 14, 18

### Sector and label list (as shown in the figure)
- Consumer, noncyclical
- Technology
- Communications
- Financial
- Basic materials
- Consumer
- Energy
- Industrial
- Utilities
- Modeled HY credit risk premium
- Modeled HY default compensation
- US high-yield spread
- Downgrades of BBB to HY as percent of BBB issuers
- HY default rate as a percentage of outstanding HY bonds
- Note: HY = high yield.

*Sources: Barclays; Bloomberg Finance L.P.; Moody’s; and IMF staff calculations.*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2019/april/english/ch1data/charts/figure1-12.pdf_