Speculative-grade defaults in the US were down to 0.9% by December 2007, from 1.7% a year earlier. In Europe, the rate fell to 1.2%, from 2.6% a year earlier.
But Moody’s warned this trend would not continue, with a sharp rise in global corporate defaults expected over the coming year. “We believe December 2007 likely marks the low point of the current default rate cycle, as several issuers have missed payments in recent weeks, which should translate into upward pressure on default rates,” said Kenneth Emery, the agency’s director of corporate default research.
The agency predicts the global speculative-grade default rate will increase to 4.8% by the end of 2008, and expects it to revert to its 5% historical average by the end of 2009.
Among US speculative-grade issuers, Moody’s forecasts the default rate will rise to 5.3% by the end of 2008, an increase of 4.4 percentage points over the figure for December 2007. In Europe, it said the speculative-grade default rate would increase to 3.5%, nearly triple its current level.