High Yield Default Rate Jumps
August 11, 2008
The U.S. speculative-grade default rate increased to 3.0% in July from 2.5% in June, according to a recent report from Moody's Investors Service. At this time last year, the U.S. rate stood at 1.5%.
The global speculative-grade default rate also rose, to 2.5% in July from 2.1% in June, the largest monthly increase since the rate bottomed at 0.9% in November 2007. A year ago, the global speculative-grade rate also hovered at 1.5%.
"The pace of corporate defaults increased considerably in July as economic conditions weakened and more companies experienced financial distress,” Moody's Director of Corporate Default Research Kenneth Emery said in a release.
“Under our baseline model forecast scenario, the global default rate is expected to climb sharply over the next twelve months to 6.3%, while it could reach 10% in a downside scenario of a protracted-U.S. recession.”
The rating agency expects default rates for U.S. speculative-grade issuers to reach 5.7% by the end of this year and 7.2% a year from now. The consumer transportation sector, primarily consisting of airline companies, will be hit the hardest in the U.S.
In Europe, Moody’s predicts, the durable consumer goods sector will be the most troubled.
For more information on related topics, visit the following:
