The global corporate speculative grade bond default rate decreased to 1.77% at the end of December 2004 from 1.99% in November, according to a report titled “Global Bond Markets’ Weakest Links and Monthly Default Rates ‘, published by Standard & Poor’s Ratings Services.
The global speculative-grade default rate has remained below the long-term (1981-2004) average of 4.91% for 14 consecutive months but is still above the record low of 1.3% posted in the second quarter of 1997.
“Expectations for continued economic strength, relatively favourable financing conditions, and healthy corporate profitability imply a sanguine outlook for defaults in the near term,” says Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group. “However, in 2005, the global default rate is expected to edge up slowly from its trough.”
In the US, results from a proprietary default forecast model indicate that US speculative grade default rates will decline slightly from their fourth quarter low (2.3%) but then turn around in the latter part of 2005 (results based on running the model on January 6, 2005).
The average forecast for the next four quarters (2.2%) remains lower than the historical average of the trailing four quarters (3.8%). Concerns for a more material increase in defaults in two to three years remain.