Moody’s Trims Junk Bond Default Rate Forecast to 14.6%
Moody’s default rate forecasting model now predicts that the global speculative grade bond default rate will reach a peak of 14.6% in the fourth quarter of 2009 and will remain at an elevated rate of 11.7% a year from now. The forecast is down slightly from over 16 % forecast in February, as high-yield bond spreads have declined moderately from their fourth-quarter 2008 peaks.
The rate of global speculative-grade corporate defaults over the previous 12 months finished the first quarter at 7.0%, up from a level of 4.1% at the end of 2008. A year ago, the global default rate stood at 1.5%.
The U.S. speculative-grade default rate ended the first quarter at 7.4%, up from 4.5% in the previous quarter. At this time last year, the default rate stood at 1.8%.
Measured on a dollar volume basis, the global speculative-grade bond default rate closed at 10.2% in the first quarter, almost doubling the 5.8% level from the previous quarter. Last year, the global dollar-weighted default rate stood at 0.9%.
Moody’s now predicts that the U.S. speculative-grade default rate will stand at 13.5% at the end of 2009 after peaking at 14.1% in the third quarter, while the European speculative-grade default rate is expected to rise to 21.2%.
Consumer Transportation sector will be the most troubled 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 — closed at 50.9% at the end of the first quarter, down from 54.6% in the previous quarter. A year ago, the index was much lower at 23.4%.
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