Global Junk Bond Default Rate Falls

The global junk bond default rate fell to 6.4% in May from a revised 6.7% in April but will linger around unchanged levels over the next year, Moody’s Investors Service said Thursday.

The default rate on junk bonds, based on the number of issuers defaulting over the last 12 months, has declined from a peak of 10.8% in January 2002. It stood at 8.3% at the beginning of the year.

The U.S. junk bond default rate edged up in May to 6.05% from 5.86% in April, according to Moody’s.

Default rates often track rating downgrade trends, which still are signaling credit stress.

Moody’s downgraded 3.8 ratings for every one it upgraded in the first quarter and put 4.5 companies on review for downgrade for every one it put on review for upgrade.

One silver lining is that the size of defaults is dropping significantly, from an average of about $1.2 billion last year to about $500 million in 2003. A wave of bankruptcy filings by such big corporate borrowers as WorldCom Inc. caused the size of defaults to rise sharply in recent years.

From Reuters