Moody’s Investors Service reports that the global default rate at its lowest level in over two decades, however it predicts a sharp rise this year.

The global speculative-grade default rate drifted lower in December, closing 2007 at 0.9%, down from its’ level of 1.7% a year ago, Moody’s reported today. The global default rate is now at its lowest level since December 1981 when it stood at 0.7%. Measured on a dollar volume basis, the global speculative-grade bond default rate closed at 0.6% in 2007, down from 1.1% at the end of 2006.

“We believe December 2007 likely marks the low point of the current default rate cycle as several issuers have missed interest payments in recent weeks, which should translate into upward pressure on defaultrates as the 30-day grace periods on these issuers’ bonds expire and they become actual defaulters” says Moody’s director of corporate default research Kenneth Emery.

Moody’s default rate forecasting model predicts that the global speculative-grade default rate will rise sharply to 4.8% by the end of this year. By the end of 2009, the model forecasts the global default rate will reach its’ historical average of 5%.

“Both weaker macroeconomic fundamentals and a modest worsening in the ratings mix of Moody’s speculative-grade issuers are contributing to recent increases in forecasted default rates for year-end 2008,” adds Emery.

Moody’s speculative-grade corporate distress index, which measures the percentage of rated issuers that have debt trading at distressed levels, reached 11.5% in December, the highest level since July 2003. A year ago, the index stood at 4.2%.

No Moody’s-rated corporate issuers defaulted in the month of December, leaving a total of 16 defaulters for the entire year in 2007. Also, no Moody’s-rated leverage loan issuers defaulted in December. The trailing 12-month leveraged loan default rate ended at 0.1% in 2007, down from 0.6% at the end of 2006.