Moody’s Investors Service reported that the global default rate for speculative-grade securities was unchanged in September at 2.3%, the first month since October 2003 that the default rate has not fallen.

“The default rate has fallen much more rapidly this year,” said David Hamilton, Moody’s director of default research. “In 2003, the decline in the default rate was moderate – from 7.6% to 5.2%. But the pace of decline has gained steam this year, and the default rate has fallen by more than half, to 2.3%, from 5.2% in January.” A year ago, the global speculative-grade default rate was 5.9%.

Moody’s default rate forecasting model predicts that the global speculative-grade default rate will drop to 1.9% by the end of 2004, but will inch up slightly over next year to 2% by the end of September 2005.

In the third quarter of 2004, a total of seven issuers defaulted on US$2.2 billion of bonds, for the lowest quarterly default count in six years. The third quarter 2003 saw 22 issuers default on US$11 billion of bonds.

Over the first nine months of 2004, a total of 28 corporate issuers defaulted on US$8.4 billion of bonds, compared with 68 issuers defaulting on US$31 billion of bonds in the first nine months of 2003.

U.S.-based issuers accounted for all five defaults last month, for a total volume of US$1.6 billion — the highest monthly total since January’s US$2.6 billion. The largest September default by far was that of US Airways, Inc., which defaulted on US$873 million of public bonds. The airline, the nation’s seventh-largest, filed last month for protection under Chapter 11 of the U.S. Bankruptcy Code. It was the second such filing for the airline in two years.

In another report, on its global corporate bond rating performance, Moody’s says ratings continue to be highly accurate, although rating upgrades have led to decreased stability.

The one-year-horizon “accuracy ratio” remained high at 93.1% in the third quarter, consistent with prior quarters in which the aggregate default rate has been very low. The accuracy ratio measures the correlation between Moody’s ratings and subsequent default/non-default experience.

Mooody’s says ratings for the six issuers that defaulted in the most recent quarter were on average about half of a rating notch lower in advance of default compared to issuers that defaulted a year ago.

Notwithstanding their continued accuracy, Moody’s says that rating stability decreased in the third quarter, driven by a large number of upgrades. There were 320 firms with rating actions compared to 248 firms with rating actions during the same period a year ago, representing a increase in the share of issuers experiencing rating changes from 18.2% to 22.6% on an annualized basis. The frequency of firms with large rating changes (changes in excess of two rating notches) also increased, to 92 issuers from 80 issuers a year ago.

The majority of rating changes during the first quarter of this year were preceded by rating reviews or outlooks in the appropriate direction. Of 341 rating changes (spread across 320 firms), 205 (60%) were preceded by rating reviews (the Watchlist) and 47 (14%) were preceded by negative or positive outlooks.