Monday, April 2, 2012

Dropping Defaults

One nice piece of fallout from the improved economy is that the number of corporate defaults has fallen away to very low levels. There were 53 corporations that defaulted in the entire world in 2011, according to Standard & Poor's. That's down from 81 defaults in 2010, and a whopping 265 in 2009.

This bit of news is of great importance to investors in high-yield bonds, what used to be called junk bonds. Companies at risk of default are the ones that are going to need to issue high-yield debt. Of all the corporations that defaulted last year, only one had a credit rating better than junk status.

That's not to say that companies with a rating that forces them into high-yield debt are at any great risk of defaulting. Among American corporations with junk status, just 2 percent of them went into default in 2011.

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