Is the Market for Junk Bonds Overheated?
By David Berman Three months ago, Moody’s Investors Service declared that the peak in the credit cycle had passed – as in, default rates were about to decline sharply with an improved global economy. On Wednesday, the rating agency reinforced that early declaration with a report that the default rate had plunged in the first quarter. According to Moody’s, the trailing 12-month global speculative-grade default rate finished the first quarter at 9.9%, down from 13% at the end of 2009. The best is still to come: Moody’s believes the default rate will slide to just 2.8% by the end of 2010 and to 2.4% in 12 months. “Defaults in 2010 will remain few and far between as long as the high yield debt markets remain wide open for business and the global economic recovery is maintained,” said Kenneth Emery, director of default research at Moody’s. “The trailing 12-month default rate will also be under continued downward pressure as a result of the large number of defaults that occurred in the first
