Investors Brace for Defaults as Distressed Debt Swamps Market
- Market measures imply a default rate of as much as 4.8 percent
- A distressed debt ratio hasn't been this high since 2011
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Junk-bond investors are bracing for a surge in corporate defaults that would exceed the most pessimistic forecast from credit raters as the Federal Reserve contemplates its first interest-rate increase since 2006.
A measure of distress in the market is suggesting investors have priced in a
default rate of 4.8 percent during the next 12 months, according to Martin Fridson, a money manager at Lehmann Livian Fridson Advisors LLC. That’s almost two percentage points higher than the pace being projected for June next year by Standard & Poor’s, the world’s biggest credit rater, as concern mounts that energy companies that loaded up on cheap debt are going to struggle to refinance.