The global speculative-grade corporate default rate edged up slightly to 2.0% in the third quarter from 1.8% in the second quarter, Moody’s Investors Service said today.

Despite the relatively modest increase in the default rate, total defaulted bond volumes jumped tenfold to US$14 billion in the third quarter from US$1.4 billion in the second quarter, due to defaults in the telecommunications and airlines sectors.

Moody’s forecasting model predicts that the issuer-weighted global speculative-grade default rate will remain close to its present 2.0% level for the remainder of 2005, increasing to 3.2% by the end of September 2006.

In the first quarter 2005, the default rate was 2.2%, and at the end of the third quarter last year, the speculative-grade default rate stood at 2.4%

“The pendulum is set to swing toward higher default rates, but in a manner that’s consistent with where we are in the credit cycle,” said David Hamilton, Moody’s director of Corporate Default Research, “There are no obvious signs of a sharp deterioration in credit quality coming in the next year.”

The third quarter saw 11 corporate defaults, all by U.S.-based issuers. The first and second quarter saw nine and three defaults, respectively.

Among U.S. issuers, the speculative-grade default rate rose to 2.4% in the third quarter from an eight-year low of 2.1% recorded in the second quarter. The default rate is down from 2.6% in the first quarter and from 3.0% in the third quarter of 2004. In Europe, the speculative-grade default rate finished the third quarter at 1.6%, slightly lower than the 1.7% notched in both the first and second quarters. A year ago, the European speculative-grade default rate stood at just 0.7%.