High-yield default rates have dropped for three straight quarters, sitting at 4.9% at the end of the first quarter. The rate was 2.9% in the year-ago period, but late in that quarter, COVID-19 forced governments to act. In March, local authorities started issuing stay-at-home orders, and businesses shut down to the public. The default rate rose for the next two quarters, reaching 5.7% in the third quarter. Over the last year ended February, the energy and telecommunications sectors led the way, with over a 14% default rate, followed by retail, leisure and entertainment, and automotive. Fitch Ratings Inc. predicts the overall default rate will fall to 2% this year.
During last decade's recession, however, default rates peaked at over 14% in 2009. There was a spike in the 2014-2016 period when the rate went from 2013's 1% to 4.7%. During that time, the energy sector saw the default rate jump to 18.8% from less than 1%, and metals and mining went to over 17% from 2%. Defaults in paper and containers were at 9.2% versus less than 2% in 2014.