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Global speculative-grade default rate set to rise in 2019

Publication Date: 11 Jan 2019 - By ReachX Team By ReachX T.

Equity Fundamental Macro Multi Asset Equity Global


The global trailing 12-month speculative-grade default rate, as gauged by rating agency Moody’s, finished the final quarter of 2018 at 2.3%, down from 2.8% at the end of the prior quarter, the rating agency said in its latest default report. 

Looking ahead, however, Moody's forecasts that after dipping to 2.0% in the second quarter of 2019, the global default rate will begin rising again, to reach 3.0% by the end of the year.

Default rate forecast assumes more difficult market conditions as economic growth slows, credit conditions tighten and borrowing costs rise. 

“We also expect escalated volatility in the high-yield market due to uncertainty around interest rates and geopolitical issues including US-China trade tensions, though most Moody's-rated companies have low refinancing risk in the coming year and corporate profits and liquidity remain healthy," said Sharon Ou, Vice President and Senior Credit Officer, at Moody’s.

Ten Moody's-rated companies defaulted in December, pushing the default tally to 17 in the final quarter of 2018 and to 77 for the full-year. December's defaults included construction, non-bank financial, and energy companies. 

Of the 35 industry groups Moody's tracks, Retail experienced the most defaults last year, at 16. Retail was followed by Oil & Gas with 15 defaults, almost half the number of the previous year as challenges related to the oil price slump continue to recede.

In the US, the speculative-grade default rate finished 2018 at 2.8%, down from 3.3% the prior quarter, while in Europe the default rate fell to 1.3% from 2.0% over the same period. In 2019, Moody's expects Media (Advertising, Printing and Publishing) to see the most defaults in the US, and the Hotel, Gaming, and Leisure sector to be the most troubled in Europe.


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