LONDON, March 12 (Reuters) – 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.” (Reporting by Karin Strohecker. Edited by Mike Dolan)
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