Moody's Projects Default Rates to Fall in 2010
The US speculative-grade default rate swelled in Q309 as the economy continued to work its way through recession, unemployment remained high and loan performance remained weak, but analysts expect a sharp decline by this time next year, according to a report from Moody’s Investment Services. Moody’s analysts project the default rate of issuers reached 12.9% in Q309 on varying types of loan collateral from mortgages to automobiles. The quarterly US default rate rose from 11.5% in the previous quarter and spiked from 3.2% at this time last year, according to the report. But analysts expect US speculative-grade issuers to peak at a 13.5% default rate in Q409 before falling sharply to 4.4% by the end of the Q310. “Moody's baseline model forecast for sharply declining default rates over the next year assumes a sustained modest economic recovery with the US unemployment rate reaching a peak of 10.5% in 2010," said Moody's director of corporate default research, Kenneth Emery. Emery added that the forecast remains consistent with previous credit cycles when default rates fell to the historical average of 5% 12-to-18 months after its peaks in 1991 and 2002. The global speculative-grade default rate hit 12% in Q309, a jump from 10.6% in the previous quarter. Last year, the global default rate held at 2.8%, according to the report. European default rates climbed to 9.3% in the third quarter from 6.4% in Q209 and an increase from 0.7% last year, according to the report. Write to Jon Prior.