Moody’s Investors Service reported today that the global speculative-
grade default rate declined again in November to 1.8% from the 1.9% recorded in October.

The rating agency said that the default rate has fluctuated between 1.8% and 2%, since March 2005. Moody’s expects the global speculative-grade default rate to remain near the 2% level until the second quarter 2006, after which time it is expected to rise at an accelerated rate. Moody’s forecasting model for its issuer-weighted global speculative-grade default rate predicts that the default rate will finish 2005 at 1.9%, but rise to 3.3% by the end of November 2006.

“The global default rate looks to finish 2005 somewhat lower than Moody’s expected a year ago,” said David Hamilton, director of corporate default research in New York. “Our forecasting model predicted the default rate to end the year at 2.7% back in January, but economic activity has remained healthy and investor appetite for high yield has persisted. We expect the default rate to trend higher in mid-2006, but to remain below its 4.9% long-run average for the foreseeable future.”

Year-to-date, the number of defaulting issuers trails 2004, but the total volume of bond defaults exceeds 2004. For the year to date, some 27 corporate bond issuers have defaulted on approximately US$19.7 billion of bonds. In the first 11 months of last year, a total of 35 issuers defaulted on US$11.2 billion.

With only one month remaining in 2005, Moody’s said that default trends were well established. “This year was fairly benign from a defaults perspective, but there were a few notable credit stories,” Hamilton said. “The downgrades of GM and Ford to speculative grade heightened concern about general credit quality and rising default rates, but the damage was fairly contained.”

Hamilton noted that defaults in 2005 were concentrated in a few industrial sectors and in U.S.-based issuers. The cable sector experienced the highest total default volume though the end of November 2005 with US$6.8 billion of bonds, followed by airlines with US$5.8 billion, and the automotive sector with US$3.6 billion of bonds. Of the 27 bond defaults through November 2005, 24 were based in the U.S. Two European-domiciled corporate issuers defaulted on a total of US$377 million, and the third non-U.S. default was Brazil’s Banco Santos S.A. (US$100 million).

On a dollar-volume basis, the global speculative-grade default rate for November dipped slightly to 3.5%, from October’s 3.6%. For the first 11 months of the year, the global dollar-volume default rate is up more than a third, from 2.6% in January. In November 2004, the dollar-volume default rate was 1.9%.