Defaults Slow To Materialize Even As Risks Continue To Increase

Standard & Poor’s Ratings Services has published its latest “Global Bond Markets’ Weakest Links And Monthly Default Rates,” report, which states that three defaults were recently recorded among rated global corporates, bringing the total to 15 defaults so far for 2007. These defaults affected rated debt worth about US$4.5 billion.

The 12-month trailing global corporate speculative-grade bond default rate held steady at 1.02% in August, remaining near record lows. The default rate has been below its long-term (1981-2006) average of 4.48% for 43 consecutive months. By region, the speculative-grade default rates were 1.27% in the U.S., 1.39% in Europe, and 0.38% in emerging markets.

Our U.S. speculative-grade default forecast remains at 1.4% by year-end 2007. Corporate credit risks continue to increase even as corporate defaults are slow to materialize. “There is a material risk that defaults could be more severe beyond the one-year forecast horizon,” noted Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group. “The leaks in the credit markets will continue to sap strength, even though defaults might be staved off in the next six months, in part because of structural concessions that avert payment default.”

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