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With corporate defaults continuing to rise, research from Moody’s Investors Service finds bond defaults are typically a symptom of economic deterioration, rather than a cause.

In a report, the rating agency said the global default rate for speculative-grade corporates rose to 4.8% by the end of 2023, up from 1.8% over the past two years. The agency expects defaults will continue to rise.

“Still-high interest rates and slowing GDP growth have prompted concerns about the potential for stress in the bond markets,” the report said.

Moody’s research examined whether rising bond defaults tend to amplify economic stress, finding that bond market stress doesn’t necessarily slow an economy — unlike banking sector stress, which can trigger economic downturns as financial conditions tighten and credit availability shrinks.

“Examining data from around the world and across the past 100 years, we found that banking crises can significantly damage economic growth even if bank stress falls short of a public panic,” the report said.

And, while bond markets tend to deteriorate alongside financial conditions, Moody’s said long-run data suggests that “defaults mirror, rather than add to, macro shocks.” Specifically, “increases in the default rate do not systematically impede growth over and above the harm that may have already been caused by other macroeconomic factors, including bank health.”

As a result, the rating agency concluded that bond default cycles tend to be symptoms of financial and economic shocks, not a cause of these downside shocks.