The global default rate for speculative-grade securities ticked down in November and is predicted to head lower in the months ahead, according to new research from Moody’s Investors Service Inc.
The global speculative-grade default rate came in at 4.6% for November, down slightly from 4.7% in October, the credit-rating agency reports, adding that it expects the rate to finish the year at about 4.3%. Looking ahead to November 2017, the rate is expected to continue declining to 3.2%, well below the historical average of 4.2%.
“Even though the number of defaults, at 129, this year by Moody’s-rated corporate issuers have been the highest since 2009, default counts have fallen to single digits in recent months compared with double digits during February-July,” says Sharon Ou, vice president and senior credit officer at Moody’s, in a statement. “In November, we recorded the lowest monthly defaults count — a total of four — since 2014.”
North American issuers have accounted for the majority of defaults so far this year, with 91 in the U.S. and seven in Canada, Moody’s reports. In contrast, Europe has seen just 15 defaults.
On a sectoral basis, commodities are generating the majority of defaults, and they accounted for two of the four defaults in November, even as commodities prices increased, Moody’s notes.
“Despite some volatility, the credit market remains open for high-yield companies to manage refinancing needs,” Ou says. “Within a baseline scenario of tighter high-yield spreads, our model predicts a benign default outlook in the coming year with fewer new energy sector woes.”
Nevertheless, Moody’s still expects default risk to remain higher in certain commodities sectors in 2017, forecasting that the default rate in the U.S. will be highest in the metals and mining sector, at 6.3%, followed by energy electricity; the finance, insurance and real estate sector; and, finally, oil and gas.
In Europe, Moody’s predicts that the media sector will have the toughest time, followed by oil and gas.