Moody's Investors Service's trailing 12-month global speculative-grade default rate came in at 4.7% in July, up from 4.6% in June and above its long-term average of 4.2%, the rating agency says in its latest global default report. Moody's expects the default rate to peak at 5.1% this November, before easing off to 3.9% in July 2017.
"In the month since UK voters opted to leave the European Union, high-yield spreads have returned to their pre-Brexit levels in both Europe and the US," said Sharon Ou, a Moody's Vice President and Senior Credit Officer. "This helps relieve the pressure on future default rates."
Also supporting an easing in the default rate are moderate improvements in Moody's Liquidity Stress Index and the number of companies on its B3 Negative and Lower Corporate Ratings List, both having come off their recent peaks, Ou says. Nonetheless, these measures currently stand at levels that suggest high-yield issuers remain vulnerable to any economic weakening.
Eleven Moody's-rated companies defaulted in July, sending the default tally to 102 so far this year. Defaults remain concentrated in the commodities sector, with continued cash flow pressures as a result of low oil prices.
Seven oil and gas companies defaulted last month, including the bankruptcy filings of Halcon Resources Corporation and CJ Holding Co. Of the 62 commodities companies that have defaulted so far this year, 49 have come from the oil and gas sector and 13 from metals and mining.
By region, so far in 2016 defaults have been concentrated in North America, where 80 Moody's-rated issuers have defaulted, compared with 10 from Europe and the remaining 12 from Asia, Latin America and Africa. The trailing 12-month US speculative-grade default rate finished July at 5.5%, up from 5.2% in June.
In Europe, the comparable rate edged up to 2.6% from 2.5%. At this time last year, the US and European rates stood at 2.2% and 2.5%, respectively.