By Anthony Harrington
In its latest reports on U.S. and European high-yield corporate debt, the ratings agency Fitch flagged up the fact that the trailing 12-month default rate on this asset class rose above 2% for the first time since October 2010, hitting 2.2%. However, the high-yield space continues to provide very attractive returns for investors and Fitch says that the default level remains on track to be between 2.5% and 3% by the end of 2012, despite increasingly difficult trading conditions.
The funding environment for the weakest companies in the high-yield universe began to sour in the summer of 2011, following a further escalation in the European debt crisis, disappointing data on the critical US housing and labor markets and disruptions caused by the US debt ceiling debate. Defaults have since been heavily concentrated at the ‘CCC’ level. The share of ‘CCC’ or lower rated bonds trading at the
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