Moody’s Investors Service reports that the default rate continues to decline for speculative-grade credits.

The rating agency said Thursday that the global speculative-grade default rate finished at 4.0% in September, down from 6.2% in the previous quarter.

At the same time last year, the global default rate was sitting at 13.2%.

Moody’s default rate forecasting model now predicts that the rate will fall to 2.7% by the end of this year before declining to 2.0% by the third quarter of 2011.

“While we note the stronger pricing of some high yield debt, our default expectations remain stable,” said Albert Metz, Moody’s director of credit policy research. “Of course risks remain. But for several months now, realized defaults have been coming in a little below our expectations.”

A total of 40 Moody’s-rated corporate debt issuers have defaulted so far this year, of which 13 were recorded in the third quarter. In comparison, there were 237 defaults from January to September last year, including 60 in the third quarter.

In the coming year, default rates are expected to be highest in the hotel, gaming, & leisure sector in the U.S. and the durable consumer goods sector in Europe.

Measured on a dollar volume basis, the global speculative-grade bond default rate edged lower to 2.0% in the third quarter, down from the 3.1% level from the previous quarter. Last year, the global dollar-weighted default rate was noticeably higher at 18.9%.

Moody’s speculative-grade corporate distress index — which measures the percentage of rated issuers that have debt trading at distressed levels — came in at 15.0% at the end of the third quarter, down from 16.0% in the previous quarter. A year ago, the index was at 32.5%.

IE