NEW YORK March 10, 2006Standard & Poor's Ratings Services' latest report, "Global Bond Markets' Weakest Links And Monthly Default Rates," says that the global corporate speculative-grade bond default rate remained at its lowest level in more than eight years, reaching 1.33% at the end of February 2006. Speculative-grade default rates were recorded at 1.9% in the U.S., zero in Europe, and 0.21% in the emerging markets.
In the first two months of 2006, four defaults were recorded among entities rated by Standard & Poor's, affecting rated debt worth US$2.7 billion. Globally, the speculative-grade default rate has remained below the long-term (1981-2005) average of 4.65% for 25 consecutive months but is still marginally above the record low of 1.28% posted in the second quarter of 1997.
"The global default rate is expected to edge up slowly from its trough in 2006, but the near-term default outlook is mostly sanguine, owing to expectations of relative economic stability, relatively favorable financing conditions, and healthy corporate profitability," noted Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group.
Results from a proprietary default forecast model indicate that U.S. speculative-grade default rates will continue to edge up slowly in the next few quarters, reaching 2.9% by the fourth quarter of 2006 (results are based on running the model on March 3, 2006). The U.S. speculative-grade default rate is expected to reach 4.3% by the end of 2007, still below its 4.7% long-term average.
As of March 9, 2006, a total of 17 "weakest links" entities remained vulnerable to default on rated debt worth US$5.4 billion, one more than a month earlier but lower than the average of 20 entities recorded over full-year 2005. U.S.-based issuers (including tax havens) constituted 13 of 17 issuers.
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