The default rate for issuers of U.S. corporate junk bonds — bonds that Standard & Poor’s rates BB+ and below — is expected to “catapult” to an all-time high of 13.9% by December, S&P said in a report today.
The default rate for issuers of U.S. corporate junk bonds — bonds that Standard & Poor’s rates BB+ and below — is expected to “catapult” to an all-time high of 13.9% by December, S&P said in a report today.
“The continued high stress level in the financial system — which has wrought changes unprecedented since the Great Depression — is expected to ripple through more broadly, materially affecting the number of defaults,” according to the report from New York-based S&P. “Although aggressive government intervention in the U.S. and elsewhere has somewhat countered the turmoil, we now expect it to take its toll on already vulnerable corporations and the economy in general.”
The corporate high-yield bond default rate finished last year at 4.02%.
To realize the predicted 13.9% default rate, 209 issuers must default in the next 12 months, according to the report.
This implies an average of 17.4 defaults per month and 52.2 defaults per quarter, more than double the corresponding 2008 pace of 7.8 and 23.5, respectively.
“Given the sharp hit to consumers in this slowdown, we anticipate that the consumer discretionary sector will be at the forefront of the default wave,” according to the report. “This segment accounts for a considerable portion of the distressed credits and nearly half the issuers listed as weakest links.”