Here’s something to boost Monday’s junk bond-craze.
Moody’s reports that the speculative-grade default rate has decreased for the first time since January 2008. Here’s the relevant bit from the ratings agency’s December default report.
After increasing for 23 consecutive months dating back to January 2008, the issuer-weighted global speculative-grade default rate declined to 12.5% in December from 12.9% in November. The default rate stood at only 4.2% at the beginning of 2009 and a very low 1.1% in January 2008 when it began its ascent. Additionally, the 2009 12.9% peak reached in November surpasses the historical peaks of 12.2% and 10.4% reached in 1991 and 2002, respectively.
Among U.S. speculative-grade issuers, the issuer-weighted default rate began 2009 at 4.7% and ended the year at 13.2%. In Europe, the comparable rate increased even more rapidly during 2009, rising from 2.1% to 10.2%. The U.S. and European default rates both peaked in November, at 13.8% and 10.5% respectively.
Is this the definitive peak in the credit cycle?
Time will tell.
In the meantime we’d note that not only is Moody’s saying we may have turned a corner in the credit cycle; they’re saying they expect it to be a very sharp corner indeed:
Default rate forecasted to fall below it historical average in 2010
Looking ahead, Moody’s default rate forecasting model predicts, under its baseline scenario, that the global speculativegrade default rate will fall sharply to 3.3% by year-end 2010. The decline is forecasted to be more rapid in the first half of 2010 with the rate expected to drop to 6.4% by the end of June. The baseline forecast implies approximately 60 defaulters in total in 2010.
BarCap’s `credit surprise’ snapback – FT Alphaville
Brace yourself for record corporate defaults in 2009 – FT Alphaville
Warning on 2011 corporate default risk – FT