Fitch Ratings is forecasting the U.S. high-yield bond default rate to be 4.5% in 2016 as “weak commodity prices will continue to challenge energy and metals/mining issuers.”
The spot price for West Texas Intermediate has fallen more than 31% year-to-date as of Dec. 15, to $36.70 per barrel. The default rate in the energy sector is forecast to hit double digits next year (11%), “eclipsing the 9.7% mark seen in 1999.”
Fitch’s projected default rate would equate to about $66 billion of defaults, which it says would be the fourth-highest total since 2000.
Excluding the troubled energy and metals/mining sectors from the index, the remaining portion of the U.S. high-yield universe is forecast to finish 2016 with a 1.5% default rate.