According to credit rating agency Standard & Poor, US default rates edged up sharply in February and has reached highest level since 2009, surpassing the levels seen during the collapse of Lehman Brothers. In February it has jumped to 3.3%, compared to 2.8% in January.
These numbers may not look big but one needs to consider FED's large balance sheet and near zero interest rates, which might be keeping a lid over the numbers. Moreover when conditions deteriorate these numbers could edge up pretty fast. Back in 2007, US corporate default rate was 1.02%, that edged up to 2.96% during Lehman collapse and a staggering 12% in 2009 before FED introduced easing. Standard & Poor is forecasting that default rates will edge closer to 4% by end of 2016.
Latest data shows downgrade is on the rise. In February S&P upgraded only 20 companies while downgrading 110, bringing the ratio to 5.5:1. Spread is also on the rise. Average spreads between CCC or lower corporates and US treasuries have reached more than 20%. This phenomenon is also impacting investment grade bonds, where spread is also on the rise.
US is at a critical juncture, when any adverse shock in the economy such as China hard landing could once again push it to the brink.


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FxWirePro: Daily Commodity Tracker - 21st March, 2022




