A low default rate awaits high-yield nonfinancial companies in Asia Pacific by the end of this year, which Moody’s Investors Service reported will fall in line with the global trend.
Compared to a default rate of more than 4% in 2017, a Feb. 26 Moody’s report stated that the rate is expected to drop to just under 2% before the end of 2018, according to its Credit Transition Model (CTM). The three contributing factors to this anticipated low default rate include major central banks normalizing monetary policies, steady liquidity as well as ongoing intraregional financial flows and domestic bond markets.
“Our expectation of a low default rate also reflects generally stable global funding and liquidity conditions, despite global monetary conditions having started to normalize and expectations of a moderate slowdown in China’s growth rate,” Moody’s Group Credit Officer Clara Lau said in the report. “Moreover, expected default risk across all the sectors of our rated portfolio will be low, as continued accommodative monetary policies and intraregional financial flows support debt servicing.”
Asia Pacific could still encounter risks of a higher default rate in connection to increased trade protectionism with the U.S. and geopolitical tensions escalating with North Korea. Global liquidity appears stable, however, Moody’s reported that tightening liquidity could cause financial market volatility.
Moody’s CTM also indicated that global default rates should drop about 1% year-over-year, while landing around 2% and 1% in the U.S. and Europe, respectively.
—Andrew Michaels, editorial associate