The giant credit-ratings service Moody's came out with a report yesterday indicating that default risk for the companies whose bonds it rates had dropped to its lowest level in two years. In June 2009, there were 288 American companies with a credit rating of B3, which is six steps below investment grade. Now, there are just 195. Moody's added 13 companies to its negative ratings in the quarter ended August 31, as opposed to 35 in the same period a year earlier.
And these aren't just fly-by-night penny stocks; among the corporations that Moody's upgraded were such well-known entities as Clear Channel and Neiman Marcus. That shows another step towards health for this economy, making it less and less likely that we'll see very many more collapses of large American corporations (although Blockbuster will apparently file for bankruptcy today).
It's interesting to see that, in a sense, the bond market had already taken note of this lessening of risk. Purchases of speculative-grade bonds - what used to be called junk - soared in the first half of this year to $119 billion, their highest level since Bloomberg began compiling those figures in 1999. Clearly, the bond buyers had already recognized that those bonds were not likely to default.
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