Moody’s Investors Service says the global speculative-grade default rate ended the first quarter by falling to 2.2% from 2.3% in the fourth quarter 2004.

As a percentage of dollar volume outstanding, the global speculative-grade default rate fell to 2.1% in the first quarter from 2.5% in the fourth quarter 2004. Moody’s forecasting model for the issuer-based global speculative-grade default rate predicts that the default rate will rise from its current 2.2% level to 2.8% by the end of 2005, reaching 3.2% by March 2006.

“Several signs in the corporate credit markets lend support to expectations of a higher default rate by year’s end,” David Hamilton, Moody’s director of default research, said in a report Thursday. “Yield spreads have been extremely tight and can only widen going forward. Recently, high-yield deals have been cancelled or re-priced at less favorable terms.”

Corporate default counts were unchanged from the prior quarter, while total default volume fell sharply. In the first quarter 2005, 10 corporate issuers defaulted on a total of $2.2 billion of bonds. In the fourth quarter 2004, 10 issuers defaulted on a total of $8.1 billion of bonds, while in the 2004 first quarter, there were 12 bond defaults totaling $4.3 billion. Of the 10 first-quarter defaulters, seven were based in the U.S., two were based in Sweden and one in Brazil.

Corporate defaults in the past year have primarily been driven by U.S. credit quality, Moody’s says. Thirty-three of the 38 defaults in the past 12 months have been by U.S.-based issuers concentrated in the lowest tiers of speculative grade ratings.

Moody’s noted that defaults in Europe may also be at a turning point: two Moody’s-rated European issuers defaulted in the first quarter, already equaling the total number of defaults in Europe in all of 2004.