March 12, 2020 / 3:44 PM / a month ago

UPDATE 1-High-yield default rate could hit 9.7% in 'pessimistic' virus scenario -Moody's

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LONDON, March 12 (Reuters) - Credit ratings firm Moody’s said the high-yield corporate bond default rate could spike to 9.7% - topping 2002 levels - in its worst-case scenario regarding the coronavirus outbreak. Moody’s also raised its “baseline” global default rate projection for the end of the year - the scenario it deems most likely - by 0.2 percentage points to 3.6%. It cited slow global economic growth, low commodity prices and volatile markets.

The firm said its revised baseline projection “reflects our view that financial and growth conditions will weaken with the spread of the coronavirus outbreak in the next few months”.

“The new forecasts assume a material increase in the U.S. high-yield spread in the coming two quarters before easing somewhat thereafter,” Moody’s said in its latest global monthly default report.

“In our pessimistic scenario, we assume the high-yield spread rising to 1,280 basis points (bps) and the global speculative-grade default rate increasing to 9.7%,” it added.

“Such a default rate, if realized, would be comparable to the peak of 9.6% in 2002 but lower than the peak of 13.4% during the global financial crisis.”

Reporting by Karin Strohecker. Edited by Mike Dolan and Pravin Char

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