Speculative bond default rates are on track to surpass their long-term average in the second quarter, says Moody’s Investors Service in a report published on Monday.
The New York City-based credit rating agency forecasts that the global speculative-default rate will rise to 4.3% this quarter, from the current level of 3.8%. It also expects that rate will continue to rise to 4.6% over the coming year, “reaffirming the view that the corporate default cycle has turned and is on the rise.”
Stress in the commodity sector has deepened, the Moody’s report notes, leading to a further deterioration in credit conditions. In the first quarter, roughly two thirds of the defaults were in the energy and mining sectors, the report says. Moody’s expects that default rates in these two sectors will remain elevated in the year ahead.
The first quarter defaults pushed the trailing 12-month global speculative-grade default rate up to 3.8% from 3.5% in the prior quarter, the report notes. Back in the first quarter, the global speculative-grade default rate was down at 2.2%.