Moody’s Investors Service reported that the global speculative-grade default rate was 2.0% for the 12-month period ending the second quarter, up from 1.5% at the end of the first quarter. A year ago, the rate was 1.4%.

The U.S. speculative-grade default rate ended the second quarter at 2.4%, up from 1.8% in the first quarter. Last year, the U.S. default rate stood at 1.5% at the end of the second quarter.

“While the pace of corporate defaults has increased in recent months, that pace would have been even faster were it not for loose loan covenants and the lack of issuers with maturing debt that are allowing many distressed issuers the ability to avoid default,” says Moody’s director of Corporate Default Research, Kenneth Emery. “However, deteriorating economic conditions and continued tough credit market conditions signal that distressed issuers will face building pressures over the next year and that default rates will move up sharply.”

Moody’s default rate forecasting model now predicts that the global speculative-grade default rate will rise sharply to 4.6% by the end of this year. It is expected to increase further to 6.1% a year from now.

For U.S. speculative grade issuers, Moody’s forecasting model foresees default rates increasing to 5.4% by the end of this year.

Across industries over the coming year, Moody’s default rate forecasting model indicates 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 17.9% at the end of the second quarter, down from 24.4% at the end of the previous quarter. However, it is still significantly higher than last year’s level of 1.3%, the rating agency said.

Measured on a dollar volume basis, the global speculative-grade bond default rate rose to 1.2% at the end of the second quarter, up from 0.9% the previous quarter, Moody’s said. The current dollar-weighted global bond default rate was slightly higher than the 1.1% level recorded a year ago.