High-yield default rate could spike to 9.7% in "pessimistic" virus scenario -Moody's
JOHANNESBURG - Credit ratings firm Moody’s said high-yield corporate bond defaults could spike to 9.7% - topping 2002 levels - in a “pessimistic scenario” that sees the coronavirus outbreak last longer and spread more widely that currently assumed.
Moody’s raised its “baseline” global default rate projection for year-end by 0.2 percentage points to 3.6% citing slow growth, low commodity prices and volatile markets - adding it assumed a significant blow out in U.S. high yield spreads.
“The new forecasts assume a material increase in the U.S. high-yield spread in the coming two quarters before easing somewhat thereafter,” Moody’s said in its latest global monthly default report.
But “in our pessimistic scenario, we assume the high-yield spread rising to 1,280 basis points (bps) and the global speculative-grade default rate increasing to 9.7%,” it said.
“Such a default rate, if realized, would be comparable to the peak of 9.6% in 2002 but lower than the peak of 13.4% during the global financial crisis.”