Friday, January 23, 2009

13.9% Defaults Expected This Year

S&P expects the US corporate default rate to reach all-time high of 13.9% this year, a significant revision of its previous projection a 7.6% base-case and the consequence of “a substantial worsening of the economy and the financial environment. The baseline projection of 13.9% would result in an unprecedented trough-to-peak increase of almost 13%, outstripping the rate of increase observed in any prior default-rate cycle since the start of [S&P's] series in 1981."


As Credit Sights analyst Chris Taggert puts it, "The market is faced with the prospect of a default cycle tantamount to the worst historical periods outside of the Great Depression Fundamentals hurt, weak balance sheets maim, but liquidity kills."

Speaks for itself.

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Broken said...

Too bad there isn't a junk-bond CDS fund. Of, course, the CDS premium is most likely sky-high.

How else can one short corporates without a big carry cost?