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Recent defaults in the tech sector are driving an increase in the U.S. institutional loan default rate, which is expected to head higher into 2024, says Fitch Ratings.

In a new report, the rating agency said it expects the trailing 12-month default rate to surpass its historic average of 2.4% by the end of 2023, rising to the 2.5%-3.0% range.

Currently, the rate sits at 1.9% after climbing steadily over the past year. The rate was just 0.4% in February 2022, it noted.

“Defaults have picked up over the past three months, with February tallying US$4.1 billion of volume,” Fitch noted.

While turmoil in the tech sector has driven the recent increase, the consumer products sector currently has the highest default rate at 9.6%, Fitch said.

The consumer sector’s default rate is seen easing to 6.0% by the end of the year “despite a couple more likely defaults, as Revlon’s June 2022 bankruptcy exits the sample,” it noted.

Looking further out, Fitch’s default projection for 2024 is for the trailing rate to climb to the 3.0%-4.0% range, which it said “reflects intensifying macroeconomic headwinds.”

Additionally, the rating agency expects the volume of defaults to rise to 4.0% by the end of the year, up from its current mark of 1.7%, “driven by roughly 70 issuer defaults, nearly three times the total from 2022,” it said.

So far this year, the default rate by volume is up from 1.4% at the start of the year, led by increased default activity in the tech, health-care and pharmaceutical sectors.