Moody’s Investors Service reported that the global speculative-grade default rate edged up slightly in May to 1.7% from 1.6% in April. And Moody’s also sees credit quality deteriorating in the months ahead.

In May, the number of bond defaults was the highest in five months, Moody’s said, with three Moody’s-rated corporate bond issuers defaulting in the month compared to a total of four corporate defaults in the first four months of 2006. Second, May saw the first default by a rated European corporate bond issuer in 15 months.

In the first five months of 2006, seven corporate bond issuers defaulted on a total of $2.7 billion of bonds compared to 13 issuers defaulting on $3.2 billion in the first five months of 2005, the rating agency reported. Automotive-related industries represent the largest industry share of defaults with 63% of the total $2.7 billion of bond defaults so far in 2006.

The European default was the first for a Moody’s-rated corporate bond issuer since February 2005. Moody’s issuer-based European speculative-grade default rate rose from 0% in April to 0.5% in May. In May of 2005, the European speculative-grade default rate stood at 1.7%.

Moody’s reported that the issuer-based global speculative-grade default rate has remained range-bound between 2.1% and 1.6% since May 2005. Moody’s forecasting model for its issuer-based global speculative-grade default rate predicts that the default rate will climb over the next 12 months from its current 1.7% level to 3% by the end of May 2007.

“Corporate credit conditions have been the best in a decade, but a turning point appears near at hand” noted David Hamilton, director of corporate default research in Moody’s credit policy group. “We expect a worsening credit quality, higher interest rates, and macroeconomic uncertainty to apply upward pressure on corporate default rates.”

As a percentage of dollar volume outstanding, the global speculative-grade default rate fell slightly to 3.9% in May from 4.2% in April, Moody’s said. The U.S. dollar-volume speculative-grade default rate also edged lower in May to 4.5% from 4.7% in April. Moody’s European dollar-volume speculative-grade default rate rose from 0% in April to 0.2% in May; in May 2005 the European dollar-weighted default rate was 1.3%.

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Speculative-grade default rate increases in May

Number of bond defaults was the highest in five months

Moody’s Investors Service reported that the global speculative-grade default rate edged up slightly in May to 1.7% from 1.6% in April. And Moody’s also sees credit quality deteriorating in the months ahead.

In May, the number of bond defaults was the highest in five months, Moody’s said, with three Moody’s-rated corporate bond issuers defaulting in the month compared to a total of four corporate defaults in the first four months of 2006. Second, May saw the first default by a rated European corporate bond issuer in 15 months.

In the first five months of 2006, seven corporate bond issuers defaulted on a total of $2.7 billion of bonds compared to 13 issuers defaulting on $3.2 billion in the first five months of 2005, the rating agency reported. Automotive-related industries represent the largest industry share of defaults with 63% of the total $2.7 billion of bond defaults so far in 2006.

The European default was the first for a Moody’s-rated corporate bond issuer since February 2005. Moody’s issuer-based European speculative-grade default rate rose from 0% in April to 0.5% in May. In May of 2005, the European speculative-grade default rate stood at 1.7%.

Moody’s reported that the issuer-based global speculative-grade default rate has remained range-bound between 2.1% and 1.6% since May 2005. Moody’s forecasting model for its issuer-based global speculative-grade default rate predicts that the default rate will climb over the next 12 months from its current 1.7% level to 3% by the end of May 2007.

“Corporate credit conditions have been the best in a decade, but a turning point appears near at hand” noted David Hamilton, director of corporate default research in Moody’s credit policy group. “We expect a worsening credit quality, higher interest rates, and macroeconomic uncertainty to apply upward pressure on corporate default rates.”

As a percentage of dollar volume outstanding, the global speculative-grade default rate fell slightly to 3.9% in May from 4.2% in April, Moody’s said. The U.S. dollar-volume speculative-grade default rate also edged lower in May to 4.5% from 4.7% in April. Moody’s European dollar-volume speculative-grade default rate rose from 0% in April to 0.2% in May; in May 2005 the European dollar-weighted default rate was 1.3%.