Moody’s Investors Service reported that the global speculative-grade default rate increased to 2.7% in August from 2.5% in July. A year ago, the global speculative-grade default rate stood at 1.4%.

“The speculative-grade default rate continued on an upward path in August, a trend that Moody’s expects will continue well into 2009. How high default rates eventually climb will depend in large part on the extent and duration of the developing global economic slowdown,” says Moody’s director of Corporate Default Research, Kenneth Emery

The U.S. speculative-grade default rate also rose noticeably to 3.3% in August from July’s revised level of 3.0%. At this time last year, the U.S. default rate also stood at 1.4%.

For global speculative grade issuers, Moody’s forecasting model foresees default rates increasing to 4.9% by the end of this year and 7.4% a year from now.

By sector, Moody’s default rate forecasting model indicates that the consumer transportation sector in the U.S. (31.5%), and the durable consumer goods sector in Europe (8.9%) will be the most troubled.

Moody’s speculative-grade corporate distress index – which measures the percentage of rated issuers that have debt trading at distressed levels – rose to 22.4% in August from 21.1% in July. A year ago, the index stood at only 4.3%.

There were a total of five rated defaults in August all based in the U.S. Year to date, a total of 53 Moody’s-rated corporate issuers have defaulted this year, compared to 13 defaults for the same period last year. Of the 53 defaulters, 51 are from North America (46 in the U.S. and 5 in Canada) and two are from Europe (one each in Bulgaria and France).

Measured on a dollar volume basis, the global speculative-grade bond default rate almost doubled from 1.4% in July to 2.7% in August.