Fitch Ratings predicts that the elevated interest expenses will continue to challenge highly leveraged speculative-grade companies in the U.S. and Europe, leading to increased default rates for high yield bonds and leveraged loans in 2024.
- Fitch predicts higher default rates in the US and Europe due to elevated interest expenses
- US default rates for 2024 are projected between 3.5%-4.0% for leveraged loans and 5.0%-5.5% for high yield bonds
- Defaults in 2024 are expected to be driven by sector-specific issues in the US
For 2024, Fitch forecasts US default rates of 3.5%-4.0% for leveraged loans and 5.0%-5.5% for U.S. high yield bonds, reflecting ongoing macroeconomic challenges, including high interest rates and a relative economic slowdown. However, a recession in the US is not anticipated for 2024. The high interest rate environment is expected to ease only moderately, with defaults driven by sector-specific issues, particularly in healthcare, pharmaceuticals, telecom, and technology in the U.S. In Europe, rising rates have more significantly impacted demand conditions, leading to increased stress among highly leveraged cyclical consumer and industrial issuers, as well as interest rate-sensitive real estate-related issuers.
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