The global speculative-grade corporate default rate rose to 10.7% in July from 10.3% in June, Moody’s Investors Service reports.

The ratings agency’s default rate forecasting model predicts that the rate will return to 1991 levels, rising to a peak of 12.2% in the fourth quarter and then declining sharply to 4.4% by July 2010. A year ago, the global default rate was 2.3%, Moody’s noted.

“As 2009 has progressed, Moody’s model forecasts for the peak default rate in this cycle have fallen significantly as high-yield bond spreads have narrowed. This narrowing of spreads and the recent re-opening of the high yield bond market is allowing many issuers to refinance their debt who might otherwise have defaulted,” said Moody’s director of default research, Kenneth Emery.

Moody’s predicts that the U.S. speculative-grade default rate will peak at 12.7% in the fourth quarter; the European speculative-grade default rate is expected to peak at 12%. The automotive sector is predicted to be the most troubled in the U.S. and the durable consumer goods sector is expected to have the highest default rate in Europe.

A total of 16 Moody’s-rated issuers defaulted in July, pushing the year-to-date default total to 183. In comparison, only 46 defaults were recorded in the first seven months of 2008.

Measured on a dollar volume basis, the global speculative-grade bond default rate closed at 16.9% in July, up from June’s revised level of 16.4%. Last year, the global dollar-weighted default rate was just 1.5%.