Capital Markets

Junk Bond Default Rate Nears 5 Percent

The January default rate was nearly five times the 25-year low of 0.98 percent at the end of 2007, according to Standard & Poor's.
Stephen TaubFebruary 4, 2009

The U.S. junk bond default rate jumped to 4.96 percent in January, according to Standard & Poor’s. That marked rises from 4.02 percent in December and 3.15 percent in November.

The default rate was also nearly five times the 25-year low of 0.98 percent at the end of 2007. S&P’s analysts expect the U.S. corporate speculative-grade default rate to top 13.9 percent by year-end 2009. If they’re right, that would be a record high since S&P began tracking the data 28 years ago.

The current record is 12.52 percent, recorded in July 1991. For the junk-bond market to reach the 13.9 percent level, 209 issuers must default this year. That would work out to 17.4 defaults per month and 52.2 defaults per quarter— more than double the 2008 pace of 7.8 and 23.5, according to S&P.

Citing an oxymoronic”precipitous increase in corporate defaults,” the analysts say the default rise  “reflects a pronounced decline in economic fundamentals and earnings prospects as well as a continued credit freeze that has congealed bank lending to all but a select few in the private sector.”