News and Insights
Default ratios for corporate debt are decreasing year-on-year, but have 10 years of low interest rates created a bombshell for the next crisis, asks Global Credit Data report
January 6, 2020
Global Credit Data’s latest probability of default (PD) benchmarking report shows that bank default ratios for corporate debt have dropped from 1.12% to 0.73% since 2016. On the face of it, this is good news, but could it be masking a corporate debt bubble?
Data from the report, which is designed to help banks benchmark their Probability of Default (PD) estimates against industry peers – and analyses long-term internal observed default rates and internal rating migration matrices from a portfolio of 26 leading financial institutions over a period of 15 years – show that bank loans have been performing well in recent years, but the figures are also consistent with fears of a corporate debt bubble.
An influx of newly issued corporate debt (so new as to be unlikely to already be defaulted) can have the effect of driving default ratios down, while, in practice, if this debt is issued by lower-rated companies, the underlying risk of default may well be increasing.
Read the report here.
The news was covered in The Global Treasurer, TRF News, Business Money, Trade Finance Global, Treasury 360, CTMfile.