CROSS-SECTORSECTOR COMMENT 1 November 2016ContactsBenjamin S. Garber 1.212.553.4732 Asst Dir-Economist benjamin.garber@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research,Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products.For further detail, please see the last page.Market CommentCorporate Shakeout Has Default Rate Pointing Lower Bankruptcies among large corporations have been on the decline in recent months, hinting that the default rate is nearing its cyclical peak. As the weakest firms fall by the wayside, the stronger operators can survive on an improving yet still feeble environment for profits. Helping to stabilize the high yield bond market is insatiable investor demand, which has narrowed credit spreads and greatly reduced incidence of distress. Sustained commodity price gains amid moderate economic growth also continues to keep firms afloat. Yet the long-term rise in leverage warns that credit quality is not broadly recovering.MOODY'S ANALYTICS CROSS-SECTOR2 1 November 2016 Market Comment: Corporate Shakeout Has Default Rate Pointing LowerInvestor confidence reduces bond market turmoil Brought low by the freefall in raw materials prices, energy and mining sector firms led the US high yield default rate to the six-year high of 5.7% in August. But now, falling monthly counts of business failures imply that the yearlong default rate is set to peak by Q1 2017 and go on an extended decline. Moodys Investors Service sees the US high yield default rate rising no higher than 6% in the year ahead, falling well short of peaks in excess of 11% that followed each recession of the past 25 years. Globally, the count of defaults for the six months ending September fell to the seven-month low of 75. That sum represents a fairly quick slide from the near seven-year high of 101 defaults in the first half of this year.Future default counts are destined to decline further given the deep drop in the number of borrowers with debt class...
