"HY Default Rate Clears 2%, Secured Bonds Lift Recovery Rate to 56.9%
The trailing 12-month U.S. high yield default rate rose to 2.2% in May, topping 2% for the first time since October 2010. The funding environment for the weakest companies in the high yield universe began to sour in the summer of 2011 and has continued in 2012.
The share of ‘CCC’ or lower rated bonds trading at the distressed level of 80% of par or lower remains significant at $55 billion.
The weighed average recovery rate on defaults through May was a robust 56.9% of par. However, the recovery rate on senior unsecured bonds was relatively modest at 29.2% of par. Exceptional recovery rates on secured bonds continue to boost the all-in rate.
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Below are charts of U.S. High Yield Corporate Bond Spreads and the U.S. High Yield Distress Ratio (% of spreads > 1,000 bps) that measure overall HY credit risk in the market. You can see where credit risk spiked in 2008 during the financial crisis. In the report, the "High Yield Maturity Schedule by Rating — 2012–2015" chart was also interesting.
Source: Fitch Ratings