Corporate Bond Default Rate Highest Since Great Depression

Moodys says Default Rate Surges to Highest Since Depression.

Thirty-five companies defaulted in March, the highest number in a single month since the Great Depression, according to Moody’s Investors Service.

The rate at which speculative-grade corporate borrowers worldwide failed to meet their obligations rose to 7 percent from 4.1 percent at the end of last year, Moody’s said in a report today. So far this year, 79 companies rated by Moody’s have defaulted, the New York-based ratings firm said.

Almost $1.3 trillion of losses and writedowns at financial institutions worldwide, combined with the deepest economic slowdown since World War II, have weakened companies’ finances, reducing their ability to pay debt. The global default rate will peak at 14.6 percent in the final quarter of the year, Moody’s predicted, lower than last month’s 15.3 percent forecast.

In the U.S., the default rate at the end of the first quarter was 7.4 percent, up from 4.5 percent at the end of 2008, and in Europe it jumped to 4.8 percent from 2 percent at the end of the final quarter of last year.

European default forecasts remain the highest and are expected to peak at 21 percent in the fourth quarter, down from the 22.5 percent the ratings firm’s model calculated last month.

Europe’s Recession Deepens

Bloomberg is reporting Europe’s Recession Deepens as Investment Declines

Europe’s recession deepened more than estimated in the fourth quarter after companies scaled back production and consumer spending declined.

Gross domestic product in the euro region fell 1.6 percent from the previous three months, the most in at least 13 years, the European Union’s statistics office in Luxembourg said today, revising a March 5 estimate of a 1.5 percent contraction. Investment plunged 4 percent, also more than estimated, and household spending fell 0.3 percent.

While the rate of contraction in European manufacturing and services industries may be easing, European leaders face increasing pressure as unemployment continues to increase, crushing consumer confidence.

These "signs of recovery" that cheerleaders have been seeing are mostly nonsense. The stock market has been rallying because Treasury Secretary Geithner and President Obama are willing to screw taxpayers out of trillions of dollars for the benefit of banks. Such action will not reduce defaults, restore lending, or do a damn thing for cash strapped consumers out of a job with no job prospects.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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