S&P; Expects Junk Bond Defaults to Climb Slowly

Standard & Poor’s on Monday said bond defaults by junk-rated firms worldwide were unlikely to rise significantly in the near term, but might increase to a four-year high by year-end 2007.

“For entities rated speculative grade, the global default rate is expected to edge up slowly from its trough in the coming years, though still below the long-term [1981-2005] average of 4.65%,” said Diane Vazza, head of global fixed-income research at S&P.;

The default rate fell to 1.87% of outstanding junk issues in the fourth quarter. S&P; expects default rates to climb to 2.7% of outstanding issues by the fourth quarter of this year and to 4.3% by the end of 2007, although it said the rate could reach 5.9% by year-end 2007 under a more pessimistic economic scenario.