Moody’s Investors Service reports that the global speculative-grade default rate increased to 2.0% in May from 1.7% in April.

A year ago, the global speculative-grade default rate stood at 1.5%, it noted. In the first five months of 2008, the global default rate doubled itself from a level of 1.0% at the end of 2007.

“Many speculative-grade issuers will face mounting financial pressures over the remainder of the year as a weak economy negatively impacts issuers’ revenue growth and reduced access to credit markets limits their ability to modify debt service obligations. The result will be continued upward pressure on default rates,” says Moody’s Director of Corporate Default Research Kenneth Emery.

Moody’s default rate forecasting model now predicts that the global speculative-grade default rate will rise sharply to 5.0 % by the end of this year. It is expected to increase further to 6.3% a year from now. It predicts that the consumer transportation sector will be the most troubled industry in the U.S. and the durable consumer goods sector will have the highest default rate in Europe.

Moody’s speculative-grade corporate distress index- which measures the percentage of rated issuers that have debt trading at distressed levels- edged lower to 17.5% in May from 21.4% in April and 24.4% in March. This is the second time that the index has declined since last summer. Nevertheless, the current level is much higher than the level of 1.3% in June 2007.

A total of nine Moody’s-rated corporate issuers defaulted in May, the highest monthly default count since August 2003. Eight of the defaulters were based in the U.S. and one was based in Bulgaria. Year to date, 31 Moody’s-rated issuers have defaulted, almost equaling the 31 total defaulters for all of 2007 and exceeding 2006’s total default count of 19.

Measured on a dollar volume basis, the global speculative-grade bond default rate rose from 0.9% in April to 1.1% in May. A year ago, the global dollar-weighted bond default rate was 1.1%.