Signs that U.S. corporate defaults could be growing has BCA Research advising investors to underweight corporate bonds.

In a research note, the independent investment research firm suggests that auto parts maker Delphi’s Chapter 11 filing “could be a taste of what is to come for the corporate bond market”.

“The number of downgraded companies as a percentage of total ratings changes spiked higher in September, which in previous cycles has been a good indicator of rising default risk,” it points out.

“The corporate bond market already faces the typical recipe for a rise in defaults: a surge in debt issuance by low-quality companies more than three years ago, and a catalyst such as an economic slowdown or a financial shock,” it says.

“The danger is growing that the Fed will maintain an aggressive stance and hike the target rate above the neutral level, which could lead to a more protracted slowdown in 2006,” BCA notes. “A growth slump would be a strong trigger for a wave of defaults.” As a result, it recommends underweighting corporate bonds within U.S. fixed-income portfolios.