speaking of bonds......
Tuesday May 15, 6:02 pm Eastern Time
Moody's sees 10 pct junk bond default rate by 2002
(UPDATE: Adds details, background throughout)
NEW YORK, May 15 (Reuters) - Global junk bond default rates are likely to peak at 10 percent in January and February 2002, Moody's Investors Service forecast in its latest monthly default report.
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In April, some 20 issuers worldwide defaulted on $10.3 billion in debt, up from $9.78 billion in March, Moody's said. That brought the default rate for junk bond issuers to 7.5 percent, up from 7.2 percent in March, it said.
Based on dollar volume, the default rate rose to 9.2 percent in April, up from the previous month's 8.6 percent, Moody's said.
U.S. issuers led April's defaults, accounting for 18 of the month's total, according to Moody's. Among the largest were $3.7 billion by PG&E Corp. (NYSE:PCG - news) unit Pacific Gas & Electric, which filed for bankruptcy protection in April; $2.19 billion by Winstar Communications Inc. (Nasdaq:WCII - news); and $1.95 billion by Viatel Inc. (Nasdaq:VYTL - news), Moody's said.
Moody's 10 percent junk bond default rate forecast was raised from a previous estimate of 9.9 percent.
One explanation for the rising defaults is that the junk bond market now includes the highest share of low-rated bonds ever, Moody's said.
Bonds rated ``Caa,'' Moody's lowest rating other than default, now make up about 35 percent of the market, up from 13.6 percent in 1999, said Moody's Chief Economist John Lonski.
``The Caa bond market has risen so dramatically and it appears the default rate has been lagging behind,'' said Lonski.
The picture for junk bonds isn't all bleak, however. Though a sluggish economy will keep default rates high this year, Moody's expects defaults to begin edging down by next March.
Already, Moody's is seeing an uptick in credit quality. The rating agency this month has downgraded only 1.5 junk bonds for every upgrade, a sharp improvement from April's 4.4 downgrades for each upgrade.
``For the month to date we've had an improved performance of high-yield bonds,'' Lonski added. ``They've been outperforming investment-grades, Treasury bonds and the overall equity market.''
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