Line chart showing corporate debt levels and high-yield default rates from January 1986 to December 2023, and future expectation for default rates over the next four quarters. Default rates have increased since 2022 and are expected to continue increasing. Corporate debt levels have declined since 2021.
Sources: Bloomberg, Moody’s, and Wells Fargo Investment Institute. Quarterly data from January 1, 1986, to December 31, 2023. Q1 2024 – Q4 2024 speculative grade default rate forecasts from Moody’s forecasts, as of March 31, 2024. The nonfinancial corporate debt data includes both High Yield (HY) and investment-grade (IG) corporate debt. GDP = gross domestic product.
Key Takeaways
- Ample liquidity in the recovery period post-pandemic allowed many high-yield issuers to refinance, extend maturities, and lower interest expense.
- Looking ahead, it appears that high-yield default rates already may have peaked for this cycle. However, if a slowdown manages to materialize and liquidity dries up, we could see another pick-up in default rates.