Despite recent turmoil in the credit markets, Moody’s Investors Service reports that its global speculative-grade default rate declined to its lowest level in over a decade.

The rate finished the third quarter at 1.3%, compared with 1.4% at the end of the second quarter. The current default rate is the lowest since March 1995 when it stood at 1.1%, the rating agency said.

Moody’s default rate forecasting model predicts a moderate pick-up in defaults, placing the global speculative-grade default rate at 3.5% 12 months from now, and at 3.8% at the end of the third quarter 2009. These rates are well below the historical average of approximately 5% over the past 20 years, it adds.

This month’s forecasts are lower than those projected a month ago primarily due to declines in actual and forecasted levels of the high-yield bond spread and a small forecast reduction due to re-estimation of a model parameter.

“The Federal Reserve’s interest rate cut helped revive high-yield investors’ risk appetite, resulting in a modest improvement in credit spreads and liquidity over the past couple of weeks,” says director of Corporate Default Research, Kenneth Emery. “However, the ability of distressed issuers to access the credit markets is likely to remain challenging over the next 12 months, and should result in a significant increase in default rates.”

The third quarter saw the United States speculative-grade default rate also dip to a long-term low, as the issuer-weighted rate finished at 1.2%. Moody’s default rate forecasting model has the U.S. speculative-grade default rate rising to 3.9% by the end of third quarter 2008.

Seven Moody’s-rated corporate issuers defaulted in the third quarter on a total of $1.4 billion of debt. Five of defaulters were based in the U.S. while the other two were based in the United Kingdom Year-to-date, fifteen Moody’s-rated issuers have defaulted on a total of $4.6 billion of bonds and loans.

On a dollar volume basis, the global speculative-grade bond default rate fell to 0.9% in the third quarter, down from 1.1% at the end of second quarter. A year ago, the dollar-weighted global bond default rate was twice as high at 2.2%.