The global speculative-grade default rate dropped to 2.9% in July from a revised rate of 3.4% in June, Moody’s Investors Service says. It is the first time since January 1999 that the default rate for speculative bonds fell below 3%.

The default rate is down from 5.2% at the beginning of 2004, and down from 5.8% in July 2003. Moody’s said in a report Friday it now forecasts the rate will reach 2.5% by July 2005.

“Although the scale of the forecast has shifted down a bit due to slightly below-forecast monthly default counts, it still appears that mid-2005 will mark a cyclical nadir for the global speculative-grade default rate,” said David Hamilton, director of corporate default research.

It notes that only two corporate issuers defaulted in July, both of which are based in the U.S. There were no Moody’s-rated European defaults for the sixth consecutive month. Year-to-date, 23 corporate issuers have defaulted on about US$6.8 billion of bonds. Among the 23 defaulters, 21 are based in the U.S., while the other two are from Britain and Canada.

“ As they did in the early 1990s, speculative-grade credits are now leading the corporate credit cycle higher in the U.S. During the second quarter of 2004, Moody’s reported 62 upgrades versus 48 downgrades in the U.S. high-yield universe,” Moody’s says. “The 56% share of upgrades in total rating actions is the highest level since the first quarter of 1998.”