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Ratings agency expects default rate to decline after November.

Moody’s Liquidity-Stress Index continued to fall in September and at 14.0%, was down more than three percentage points for the quarter. This is the lowest that the Liquidity- Stress Index has been since October 2008’s level of 13.9%, said Moody’s in its latest “SGL Monitor Flash” report.

The sharp drop in the LSI highlights a trend of meaningful improvement in liquidity among speculative-grade corporate issuers, and offers more evidence that the default rate is likely to decline after November 2009.

The number of lowest-rated SGL-4 issuers fell last month to 72 from 78, down 32% from a peak of 106 at the end of March. SGL upgrades outnumbered downgrades by 5 to 1 in September, as refinancing, cash conservation and new debt continued to give issuers more breathing room.Overall, there have been 48 SGL upgrades and 22 downgrades since May 2009.

[Standard & Poor's said the junk bond default rate in the U.S. fell for the first time this year, coming in at an estimated 9.36% in September.]

Source: Moody’s Sees Meaningful Improvement in Junk Bond Liquidity