General Electric Co.’s redemption in credit markets may cast a rosier light on some $140 billion of bonds seen as the next in line for junk ratings.

As the industrial giant at the epicenter of fears about corporate America’s leverage tackles its debt load, bondholders could end up the biggest winners if others follow suit.

Add in fresh Wall Street projections downplaying downgrades, and the vigorous new-year credit rally looks like it’s more than merely dumb money riding relentless monetary stimulus.

“GE was the worst, and best, thing that could have happened to the corporate bond market,” said Geof Marshall at CI Investments’ Signature Global Asset Management in Toronto. As treasurers turn their attention to leverage, “bondholders benefit from a healthy amount of fear of downgrades,” he said.

Shrugging off growth angst flashed in the Treasury market, U.S. junk bonds are on track for the best two-month performance in almost two decades, while the likes of Barclays Plc and JPMorgan Chase & Co. push back on the corporate stress-sparks-recession narrative.

History suggests about $100 billion bonds on average become fallen angels every year, yet market pricing suggests about $140 billion are in line for these downgrades (over an unspecified time period), according to JPMorgan’s analysis.

Meanwhile, GE announced Monday an asset sale to raise cash to pay down debt and stave off a threat to its investment-grade status. In other words, it’s turned from credit bad boy to deleveraging exemplar in a flash -- suggesting concern the $2.3-trillion BBB boom will turn to bust may be overwrought.

“Companies are re-focused on de-leveraging, no wonder high yield and investment grade are off to one of their best starts of the year,” said Marshall.

His rationale may be backed at the grass-roots level. Barclays forecasts that rising-star upgrades -- where bonds are lifted to investment-grade ratings -- will surpass $35 billion of fallen-angel downgrades in 2019.

“The largest BBB issuers have a low risk of downgrade to high yield given their significant cash flow levers and general defensive business industry positioning,” strategists led by Bradley Rogoff wrote in a recent note.

Even with swelling ranks of BBB rated companies, America Inc.’s creditworthiness is better than the market pricing indicates, according to JPMorgan. The firm’s strategists led by Eric Beinstein anticipate less than 1 percent of the high-grade market will turn to junk this year, and 1.1 percent in 2020. That’s still well below the historical average of 2.7 percent per year, according to a Feb. 21 note.

“For many of the largest 50 BBB issuers we believe the risk of downgrade to BB is overpriced,” the strategists wrote. “The reasons for the generally optimistic assessment include strong financial flexibility, a commitment to deleveraging and preserving IG ratings by company managements and solid operating performance.”

Cycle Caution

It’s easy to construct the bearish case, of course. One counterpoint comes from Citigroup Inc.’s Matt King: While the Federal Reserve’s enduring dovish stance has placed a ceiling on interest costs, the debt market is hostage to late-cycle risk.

“Psychology plays a critical role in driving the market at this point,” the global head of credit products strategy said at a London briefing earlier this month. “If anyone gets scared for any reason -- whether that’s Italy or the Fed withdrawing or outflow from mutual funds -- then quite rapidly those refinancings can become a problem.”

The threat of fallen angels, meanwhile, may continue to darken the horizon. The number of investors demanding companies reduce leverage climbed to a decade-high this month, according to a Bank of America Merrill Lynch survey, while two-thirds expect slower economic growth in the next 12 months.

“Investors remain cautious about the potential implications of large fallen angel volumes, for both the credits downgraded to high-yield and legacy high yield issuers,” according to Barclays strategists.

This article provided by Bloomberg News.