Moody’s Investors Service’s reports that its forecasting model now predicts that the speculative corporate default rate will rise sharply in the year ahead due to a deep U.S. recession.

It now predicts that the global speculative-grade issuer-weighted default rate will climb to 4.3% by the end of this year and rise sharply to 10.4% a year from now. “Speculative-grade corporate default rates are expected to climb sharply throughout 2009 as our baseline forecast now incorporates a deep and protracted U.S. recession,” says Moody’s director of corporate default research, Kenneth Emery. “Corporate default rates in this cycle will likely match or exceed the peak levels reached in the previous two U.S. recessions of 1990-91 and 2000-01.”

Moody’s global speculative-grade default rate edged higher to 2.8% in October, from September’s revised level of 2.7% and 1.1% a year ago. Measured on a dollar volume basis, the default rate remained unchanged at 2.4% from September’s revised level. A year ago, the global dollar-weighted bond default rate stood at 0.7%.

For both U.S. and European speculative-grade issuers, Moody’s forecasting model foresees default rates increasing to 4.9% and 2.2%, respectively, by the end of this year and 11.2% and 9.7% a year from now.

Across industries over the coming year, Moody’s default rate forecasting model indicates that the consumer transportation sector will be the most troubled 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 — rose from September’s 29.7% to 48.5% in October, marking the highest level since Moody’s launched the index in 1996. A year ago, the index was much lower at 4.6%.

Year-to-date, a total of 71 Moody’s-rated corporate issuers have defaulted, compared with 16 defaults for the same period last year. Of the 71 defaulters, 59 are from the U.S. and Canada and eight are from Europe.

IE