WASHINGTON — The downgrade of Nissan’s credit standing from funding grade to junk by S&P International marks the beginning of a cycle that might see as a lot as $55 billion of so-called “fallen angels” this yr, stated fund managers.

International supply-chain disruptions, increased labor prices and persistently excessive inflation in a slowing economic system is predicted to harm firms in cyclical sectors like automotives, homebuilding and industrials, resulting in ranking downgrades of some investment-grade rated firms.

S&P reduce Nissan’s ranking by one notch to BB+ or junk on Tuesday, saying its profitability will stay weaker than international friends as softening demand for new-car gross sales within the U.S. and Europe would strain gross sales costs.

“We are actually reaching that inflection level the place you are going to begin seeing that recession squeeze on firms’ earnings,” stated Jason Friedman, international head of enterprise growth at Marathon Asset Administration.

Nissan had $10 billion in excellent U.S. greenback bonds, making it the biggest fallen angel since 2020, stated BofA International Analysis in a report on Tuesday.

Fallen angel quantity this yr might not be as dangerous as 2020 when it touched $250 billion, however it could possibly be considerably increased than $18 billion in 2022.

About 0.8 p.c of the investment-grade bond index, or $55 billion, was seen in danger for downgrades and already buying and selling on the BB-rating band or junk bond ranges, the report stated.

Not like vitality in 2020, no sector is at the moment in misery and the Fed is predicted to start out reducing rates of interest if the economic system slows an excessive amount of, stated BofA International.

Junk-bond fund managers see the downgrades as a possibility to put money into high quality firms which have the potential to graduate again to funding grade.

They may additionally purchase them virtually 150-200 foundation factors cheaper than an equal BB bond, as some funds could also be compelled to promote these bonds for failing to fulfill their investment-grade bond mandates, stated Manuel Hayes, senior portfolio supervisor at asset supervisor Perception Funding.