Search
 

Time to start worrying?

There is a faint, but noticeable odor, from the corporate bond market that suggests something may be going bad--and on a day when global stock ...

By Staff Writer | Updated on February 27, 2007

There is a faint, but noticeable odor, from the corporate bond market that suggests something may be going bad–and on a day when global stock markets took a tumble it might be worth investigating. In January, the 12-month trailing rate of defaults in speculative grade debt in the U.S. rose to 1.39%, a 10% increase from the rate recorded in December 2006, according to a recent report from Standard & Poor’s. Worse, as the U.S. economy slows, S&P further projects that the default rate in these junk bonds will continue this rise throughout 2007, hitting 2.33%–up almost 7% over the year. And this is not even the pessimistic scenario: If the unemployment rate hits 5.6% (instead of the currently projected 4.7%) and corporate profits begin to decline, the default rate could almost double, to 3.52%, by yearend. While that number would still be below the long-term average default rate of 4.54%, it suggests a trend that won’t make executives or investors happy. S&P’s managing director Diane Vazza gives a 25% probability for the worst-case scenario to unfold.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

Your access to unlimited Treasury & Risk content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.

Already have an account?

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Recommended Stories

Treasury & Risk

Join Treasury & Risk

Don’t miss crucial treasury and finance news along with in-depth analysis and insights you need to make informed treasury decisions. Join Treasury & Risk now!

  • Free unlimited access to Treasury & Risk including case studies with corporate innovators, informative newsletters, educational webcasts, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM publications including PropertyCasualty360.com and Law.com.

Already have an account? Sign In Now
Join Treasury & Risk

Copyright © 2024 ALM Global, LLC. All Rights Reserved.