Moody’s Investors Service reports that the global speculative-grade default rate finished 2008 at 4%, more than quadruple the closing level of 0.9% in 2007.

The ratings agency now expects that the global default rate will continue to rise sharply this year. Its quantitative forecasting model now predicts that the global default rate will reach 15.1% by year-end. The forecast increased from 10.4% last month due to an expected jump in the U.S. unemployment rate over the next year.

“Global economic conditions are now substantially weaker and more perilous than they were in the two previous credit cycles of 1990-91 and 2001-02. Consequently, Moody’s expects that the speculative-grade default rate is likely to exceed the 12% peak it reached in 1991,” says Moody’s director of corporate default research, Kenneth Emery.

Moody’s says that the model forecast implies approximately 300 corporate defaulters over the next 12 months, or 25 defaulters a month. A total of 104 Moody’s-rated corporate issuers defaulted during 2008, 22 of which were recorded in December including major newspaper publisher Tribune Company and global finance provider GMAC. Among 2008’s defaulters, 86 were from North America while 12 were from Europe. In comparison, there were only 18 defaulters in 2007 — 15 from North America and three from Europe.

“Moody’s quantitative model forecast is being driven by unprecedented corporate spread levels, a record low mix of corporate credit ratings, and expectations of a 9% US unemployment rate by the end of 2009,” adds Emery. “Because the model drivers are outside of recent historical experience and future economic conditions remain highly uncertain, the default forecast is subject to some margin of error in this environment.”

Measured on a dollar volume basis, the global speculative-grade bond default rate closed at 5.7% in 2008, almost a ten-fold increase from the level of 0.6% at the end of 2007.

Moody’s quantitative default rate forecasting model now predicts that the U.S. speculative-grade default rate will jump to 15.3% at the end of 2009, while the European speculative-grade default rate is expected to rise even more sharply to 18.3%.

The U.S. speculative-grade default rate ended 2008 at 4.4%, about four times higher than the 1.0% level registered at the end of 2007. In Europe, the speculative-grade default rate finished the year at 2.0%, almost double the 1.1% level observed a year ago.

Among U.S. speculative-grade issuers, the dollar-weighted bond default rate surged to 6.6% at the end of 2008, also significantly higher than the level of 0.6% recorded a year ago.

For the coming year, Moody’s model indicates that the consumer transportation sector will be the most troubled in the U.S. and the durable consumer goods sector will have the highest default rate in Europe.

Moody’s speculative-grade corporate distress index–which measures the percentage of rated issuers that have debts trading at distressed levels–rose to 53.1% at the end of 2008, an all-time high record since the index began in 1996.

IE