Corporate Bond Defaults Decline as Economy Rises

Corporate bond defaults declined 65% in 1992 as the economy improved and lower-rated companies took advantage of declining interest rates to refinance higher interest-rate debt, according to Moody’s Investors Service.

“The recession (in 1990 and 1991) really weeded out some of the weaker firms,” said Lea Carty, a Moody’s research associate.

Of companies with ratings below investment grade, 41 companies defaulted on $7.08 billion of public debt this year, Carty said. In 1991, 94 companies defaulted on a total of $20.3 billion of debt, Moody’s said.

Almost a third of this year’s defaults came from two companies: R.H. Macy & Co. Inc. defaulted on $1.21 billion of publicly held debt, and El Paso Electric Co. defaulted on $1.02 billion.

Monday, the gap between yields on corporate bonds and Treasury securities was mostly unchanged, with few bonds changing hands, according to a Dillon, Read & Co. trader. Reports suggesting a surge in consumer spending during the holidays helped drive U.S. Treasury bonds lower. The 30-year Treasury bond is yielding 7.39%, up from 7.36% last Thursday.