Default rates low as emerging markets weather crises

Default rates low as emerging markets weather crises: Default rates on EM corporate bonds were lower than those in developed markets last year, despite the strengthening USD, the US-China trade war, and financial crises in Argentina and Turkey, Steve Johnson writes in the Financial Times. New data reveals that just 1.4% of non-financial EM corporate bonds rated by Moody’s defaulted last year, compared to 1.6% in developed economies. EM companies represent 14% of the 4,500 bonds rated by Moody’s but were responsible for only 11% of defaults.

Speculative-grade bonds may be entering choppy waters: While Moody’s (which rates both investment-grade and speculative-grade bonds) sees default rates rising slightly during 2H2019, data from investment consultancy Fundamental Intelligence suggests that rates on speculative-grade bonds may be in for a sharp rise post-2019. The company is currently projecting rates to rise to 3.2% in 2020 and 5.2% by the end of 1H2021, with the majority of at-risk companies being concentrated in China and Argentina. Fundamental Intelligence founder David Spegel tells the FT that we should expect knock-on effects in emerging markets in 4Q2019 or 1Q2020 should these figures prove accurate.