Defaults are on the rise and at fastest pace since 2008/09 crisis, largely due to global economic slowdown, over-exposure to leverage and downturn in commodities segment. So far this year, 53 companies have either missed interest payments or filed for bankruptcy. In April alone, 16 companies have defaulted, single biggest number for any month, since November 2009, when equal number of companies defaulted.
Biggest concentration of defaults is in United States, where many small energy companies have defaulted due to lower crude oil. Despite 20% price rally this year, Crude oil is down more than 50%, from their 2014 peak and below the break-even price of smaller firms.
Biggest concern surrounding the defaults are contagion effect. Defaults are coming at a time, when banks are already paying large amount due to regulatory misconduct. Total loss due to defaults have already reached above $250 billion, which is likely to choke credit for other sectors.
As of now, financial market hasn’t felt the heat, nor did the corporates in other sector due to relatively robust demand for investment grade corporate bonds as global central banks continuing to pump liquidity.


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