The global default rate for speculative-grade bonds fell to an eight-year low during the second quarter of 2005, Moody’s Investors Service said Friday.

The global default rate dropped to 1.8%, down from 2.2% for the first quarter, marking its lowest level since June 1997. Moody’s notes the rate is a little more than half of what it was a year ago, when it stood at 3.5%.

Moody’s predicts that the default rate will end calendar 2005 near the 1.8% level. By the end of the second quarter 2006, Moody’s says it will rise to 3%. Historically, the global speculative-grade default rate has averaged 4.9% annually.

“Although some leading indicators of the default rate, such as the distribution of credit ratings and the slope of the Treasury yield curve, suggest that the default rate may head higher at a quicker pace in late 2006, the current environment of relatively low interest rates and tight risk [premiums are] is keeping the default rate low for now,” says David Hamilton, Moody’s director of default research

During the second quarter 2005 there were three defaults, a drop from nine during the first quarter 2005 and 10 during the last quarter of 2004. The dollar amount of defaulted corporate bonds during the second quarter was US$1.4 billion, compared with US$1.6 billion in the first quarter of 2005, and US$2 billion in the second quarter 2004.

Nine of the 12 defaults so far in 2005 have been in the U.S., while two have been in Sweden; one was a Brazilian default.