Moody’s Sees Tripling of Junk Bond Defaults by Year-end
Moody’s expects the default rate on junk bonds to triple by the end of the year, reaching 5.7% in the U.S. and 5.0% worldwide.
In a new report, Moody’s said the global speculative-grade default rate increased to 1.7% in April from 1.5% in March, and from 1.6% a year ago. The US speculative-grade default rate also edged higher in April to 2.1% from a revised level of 1.8% in March and from 1.5% in April 2007.
We expect continued upward pressure on default rates over the next year as issuers increasingly feel the effects of slower economic growth and reduced access to credit markets.
Moody’s default rate forecasting model now predicts that the global speculative-grade default rate will rise sharply to 5.0 % by the end of this year. It is expected to increase further to 6.1% a year from now. For U.S. speculative grade issuers, Moody’s forecasting model foresees default rates increasing to 5.7% by the end of this year.
Moody’sexpects that the Construction & Building sector will be the most troubled industry in the U.S. and the Durable Consumer Goods sector will have the highest default rate in Europe.
Moody’s speculative-grade corporate distress index- which measures the percentage of rated issuers that have debt trading at distressed levels- edged lower from 24.5% in March to 21.3% in April. This is the first time that the index has declined since last summer. Nevertheless, the current level is much higher than the level of 1.3% in June 2007, Moody’s said.
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