The global speculative-grade default rate continued to fall in October, ending the month at 1.1%, down from 1.3% in September, reports Moody’s Investors Service.

The global default rate is at its lowest level since March 1995 when it stood just below 1.1%. It has now declined approximately 33% from the 1.7% level that it was at the start of the year. A year ago, it stood at 1.8%.

“Despite diminished liquidity and continued volatility in the credit markets, corporate default rates remain at historically low levels,” says Moody’s director of corporate default research Kenneth Emery.

Moody’s default rate forecasting model predicts that the global speculative-grade default rate will rise to 3.6% a year from now, and then increase to 3.9% by October 2009.

“We continue to expect default rates to rise over the next year as distressed credits find it harder to obtain rescue financing,” says Emery. “However, default rates should remain below their long-run average of approximately 5% unless global economic growth slows more than expected.”

During October, the U.S. trailing 12-month-issuer weighted speculative-grade default rate also edged lower, finishing at 1.1% and down from 1.2% in September. The U.S. default rate is now the lowest it
has been in over two decades, or since March 1982 when it stood at 1.0%. The U.S. default rate is now down 40% from its October 2006 level of 1.9%

Moody’s default rate forecasting model predicts that the U.S. rate will stand at 4.0% a year from now.

In October there was only a single default among Moody’s-rated corporate issuers: Canadian firm Pope & Talbot, Inc. During October, the pulp and wood-based building products manufacturer filed for bankruptcy protection with $135 million of bonds and $325 million of unrated loans.

Year-to-date, 16 Moody’s-rated issuers have defaulted, fewer than the 25 defaults in the comparable period in 2006.

Measured on a dollar volume basis, the global speculative-grade bond default rate fell to 0.7% in October from 0.9% in September. A year ago, the dollar-weighted global bond default rate was significantly higher at 2.1%.