Moody’s Investors Service reported Thursday that the global junk corporate bond default rate increased last month for the first time in over a year to 6% in August, up from 5.8% in July.

In August, eight corporate bond issuers defaulted on a total of US$2 billion in debt. US-based issuers accounted for seven of the eight defaults. “The decline in the global default rate we’ve seen this year has been largely driven by a sharp fall in defaults outside the U.S., particularly in Europe,” said David Hamilton, director of Moody’s corporate bond default research.

“Although U.S. corporate credit quality is certainly improving, we’re still in the early stages of a credit recovery. It’s likely that the default rate for U.S. issuers will finish the year just slightly below where it began,” Hamilton added.

Over the first eight months of 2003, the pace of defaults by U.S. corporate issuers has shown little improvement. The U.S. speculative-grade, or junk bond, default rate increased to 5.8% in August from 5.3% in July, and is barely down from the January figure of 6.0%. The U.S. speculative-grade default rate peaked at 11% in January 2002.

In contrast, defaults of European corporate issuers rated by Moody’s have fallen sharply in 2003. For a third straight month no European corporate bond issuers defaulted, causing the rate for that region to fall sharply again last month, to 7.5% from 9.4 % in July. The European default rate is down considerably from 19.2% notched in January. “While American firms have come a long way in cutting costs and improving their balance sheets, economic growth needs to pick up — otherwise the pace of decline in the U.S. default rate will probably continue to be relatively slow,” Hamilton said.

Moody’s default rate forecasting model indicates that the global speculative-grade default rate will end the current year at 5.8%, slightly below the current level but down considerably from the 7.5% rate recorded in January. Moody’s expects the rate of decline of the global default rate to accelerate next year, reaching a level of 4.6% by September 2004.