The default rate for high-yield bonds has risen to the highest level in six years, and a top bond analyst sees more bad news ahead for investors in so-called junk bonds.
According to S&P's fixed income research team, 3.8 percent of companies with "speculative-grade" debt have defaulted over the past 12 months through March, which is the highest that rate has been since 2010. This as 12 companies with poor credit ratings (hence their "speculative" nature as well as their high yields) defaulted in March.
Defaults are only likely to increase over the rest of the year, predicts Diane Vazza, S&P's head of global fixed income research.
Vazza says the 12-month rate will rise to 3.9 percent by December in a base case scenario. And in what Vazza calls a "pessimistic," but plausible, chain of events, the default rate could rise to 5.2 percent. That would correspond to 70 U.S. defaults during 2016.
To be sure, default rates have looked far worse in the past. Speculative-grade defaults rose above 10 percent in the wake of the tech bubble, and speedily surged to 12 percent in the credit crisis.