February 9, 2010 / 4:57 PM / 10 years ago

Global default rate falls in January-Moody's

NEW YORK, Feb 9 (Reuters) - The global junk bond default rate fell to 12.5 percent in January from a revised 13 percent in December and will likely tumble to 3 percent within a year, Moody’s Investors Service said on Tuesday.

Just eight Moody’s-rated issuers defaulted in January, down from 24 a year earlier. Seven of last month’s defaults were from North American borrowers and one from Asia.

Moody’s said its default forecast assumes that a global economic recovery continues and credit spreads remain steady through 2010. If the recovery falters and credit spreads widen, the rate could end up at 7.1 percent a year from now, the rating agency said in a report.

Default rates surged last year as a global recession and credit crisis pushed a wave of corporate borrowers into bankruptcies or restructurings. An improving economy and healing credit markets have made funds more accessible to weak borrowers, however, lowering default risks.

The U.S. junk bond default rate fell to 13.6 percent in January from a revised 13.9 percent in December, while Europe’s rate fell to 9.6 percent from a revised 10.3 percent, Moody’s said.

Moody’s is forecasting the U.S. rate will fall to 3.4 percent a year from now, while Europe’s rate will likely decline to 2.5 percent.

Moody’s speculative-grade distress index, which measures the percentage of issuers with debt trading at distressed levels, fell to 15.8 percent in January from 19.3 percent in December. The index was 52.8 percent a year ago.

Bonds are considered distressed when their yields, which move inversely to prices, are at least 10 percentage points higher than those on U.S. Treasuries. (Reporting by Dena Aubin; editing by Jeffrey Benkoe)

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