Moody’s Investors Service reported that global defaults are on the rise, with the global speculative-grade default rate increasing to 2.5% in July from a revised level of 2.1% in June. A year ago, the global speculative-grade default rate stood at 1.5%.

The U.S. speculative-grade default rate rose to 3% in July from June’s revised level of 2.5%, Moody’s reported. At this time last year, the U.S. default rate stood at 1.5%.

“The pace of corporate defaults increased considerably in July as economic conditions weakened and more companies experienced financial distress. Under our baseline model forecast scenario, the global default rate is expected to climb sharply over the next 12 months to 6.3%, while it could reach 10% in a downside scenario of a protracted-U.S. recession,” says Moody’s Director of Corporate Default Research Kenneth Emery.

For U.S. speculative grade issuers, Moody’s forecasting model foresees default rates increasing to 5.7% by the end of this year and 7.2% a year from now.

The rating agency says that its forecasting model indicates that the consumer transportation sector, primarily consisting of airline companies, will have the highest default rate in the U.S. In Europe, the durable consumer goods sector 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 20.7% in July from 17.8% in June. A year ago, the index was at just 3.1%.

Of the 11 defaults in July, nine were based in the U.S. The only two defaulters outside of U.S. were Canada’s Ainsworth Lumber Co. Ltd. and Belvedere S.A. of France.

Measured on a dollar volume basis, the global speculative-grade bond default rate rose to 1.4% in July from a revised level of 1.3% in June. A year ago, the global dollar-weighted bond default rate stood at 1.1%.