U.S. high-yield defaults to reach 10-year high, Fitch says

The default rate for U.S. high-yield securities is projected to hit its highest level in 10 years, Fitch Ratings forecast.

The rating agency said that the trailing 12-month default rate is expected to approach 5.5% by the end of July, which would be its highest level since May 2010.

“Default volume tallied $41.1 billion during the second quarter, exceeding the previous record of $39.5 billion set back in 2009,” said Eric Rosenthal, senior director of leveraged finance at Fitch.

The telecom and energy sectors accounted for 70% of the total default volume in the second quarter, it noted.

Defaults in the energy sector are expected to remain elevated in the rest of the year, Fitch said.

At the same time, the report also noted that high yield issuance reached a record US$52 billion in June.

Through the first half, US$206 billion in high yield bonds were issued, compared with US$240 billion for all of 2019.

The combination of strong new issue activity and downgrades for investment grade bonds into junk territory pushed the total U.S. high yield market to US$1.37 trillion, up 16% from year-ago levels.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.