With U.S. interest rates forecast to decline in the year ahead, defaults by highly-leveraged issuers are expected to decline in 2026, says Fitch Ratings.
In a report released Wednesday, the rating agency said it’s forecasting that the default rate for leveraged loans will be in the range of 4.5% to 5% by the end of 2026 — and the default rate for high yield issuers will be between 2.5% and 3%.
“Default rates will decline in 2026 from elevated 2025 levels as more accommodating monetary policy provides relief for highly levered issuers struggling with high interest expense,” Fitch said in a research note.
The telecom, tech, and transportation sectors are expected to drive U.S. leveraged loan defaults in the year ahead, the report noted — with the telecom, cable, and broadcasting and media industries forecast to drive high-yield default volume over the next two years.
For Europe, Fitch is forecasting a default rate of between 3% and 3.5% for institutional loans in 2026, and a 3.75–4.25% rate for high-yield bonds.
“We expect [high-yield] defaults from a wide range of sectors,” Fitch said.
“Roughly 70% of [high yield] defaults come from issuers in the industrial, financial (including real estate) and consumer-focused sectors, including cyclical and non-cyclical. However, these account for only around half of estimated default volume,” it noted.