Of the 17 global defaults in the first quarter, the 16 US-based defaults affected debt  worth $8.8 billion, according to an article published today by Standard & Poor's. The report, titled "U.S. Corporate Default Outlook: Defaults Rev Up As Leverage Unwinds," says that expressed as an annual rate, the first-quarter par-based default rate is 3.5 per cent based on an estimated total outstanding US high-yield volume at about $1 trillion.

"In line with our expectations, defaults in the US have begun to climb notably, with the first-quarter pace equaling the total number of defaults in all of last year," said Diane Vazza, head of Standard & Poor's Global Fixed Income Group.

Vazza also said "We expect defaults to continue to gain momentum through the rest of 2008 and 2009. Given the prevailing high levels of market volatility, a material risk remains that defaults could be significantly more pronounced and severe, especially if a recession were to be deeper and longer than expected."

At the end of March 2008, the trailing 12-month issuer-based global default rate for all rated entities rose to 0.48 per cent.
 
By region, the default rates were 0.70 per cent in the U.S., 0.09 per centin Europe, and 0.10 per cent in the emerging markets. If only speculative-grade entities are considered, the global default rate increased for the fourth consecutive month to 1.14 per cent, well below the long-term (1981-2007) average of 4.35 per cent.

The US led the charge, with its speculative-grade  default rate increasing to 1.40 per cent, its third consecutive increase from its 25-year low of 0.97 per cent in December 2007, even though it has remained below its long-term average of 4.41 per cent for 47 consecutive months.

Vazza added, "In our baseline scenario, for which we've assigned a 60 per cent probability, we expect the US speculative-grade default rate to escalate to a mean forecast of 4.7 per cent in the next 12 months, with a one standard deviation range of 3.6 per cent to 5.9 per cent. This predicted range is significantly higher than the 1.4 per cent default rate in March 2008 and the 25-year low of 0.97 per cent in December 2007. The increase in defaults reflects the unfolding recessionary conditions, weaker earnings prospects, and continued financial pressures that will increase lending constraints."