European high yield default rates to remain low for a year

The 12-month default rate for high yield European bonds is to remain low at around 2%, a ratings agency predicts.

S&P Global Ratings says the default rate of 1.9% a year ago is expected to rise modestly to 2.1%.

The firm said European Central Bank (ECB) quantitative easing programme and other monetary stimulus packages would support a low rate of bond defaults.

In March, the ECB extended its asset-purchasing programme to include corporate bonds, which suppressed corporate funding costs and reduced default levels.

Andrew South, of S&P’s fixed income research team, said the prolonged downturn in commodity prices and bouts of market volatility posed potential threats to credit stability earlier in the year, but that these constraints seem to have abated.

“Most indicators of economic conditions and credit performance remain relatively benign and, even though downgrade and default risk in a few sectors remains heightened by historical standards, the aggregate speculative-grade default rate looks set to remain low over the next 12 months,” said South.

©2016 funds europe

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