Higher rates could push the U.S. speculative-grade corporate default rate to 5% by September 2024

With Treasury and corporate yields signaling higher for even longer rates ahead, we expect the U.S. trailing-12-month speculative-grade corporate default rate to reach 5% (86 defaults) by September 2024, from 4.1% in September 2023, S&P Global Ratings said in its article published today titled "Higher Rates For Even Longer Could Push The U.S. Speculative-Grade Corporate Default Rate To 5% By September 2024."

"But if the strong third-quarter GDP alongside gradually falling inflation is a signal of things to come, our optimistic projection of a 3.25% default rate could occur," said Nick Kraemer of S&P Global Ratings Credit Research & Insights.

The proportion of 'CCC/C' ratings to the total is historically large, with many firms already seeing negative cash flow and large maturities due in 2025. This signals a high level of sensitivity to a drop in growth or a further rise in interest rates, which could push the default rate to our pessimistic scenario of 7%.

Defaults are becoming more widespread across sectors, but consumer-facing sectors such as consumer products and media and entertainment, along with health care, are likely to continue leading among defaults as these remain sectors with high leverage and strained cash flow.

This report does not constitute a rating action.