A gathering storm?

US default rates for high-yield bonds have remained surprisingly low over the past three years. Some argue this indicates that the world has changed, but we have heard this story before, argues David Rowe

Ed Altman, of New York University's Stern School of Business, is the grand old man of corporate debt analysis. He has been analysing and predicting corporate default behaviour for more than 40 years. In a recent paper, he discussed the persistently low default rates in the US high-yield bond market from 2004 to 2006.1 From annual levels of 9.8% and 12.8% in 2001 and 2002, default rates dropped dramatically over the ensuing four years. It appears that the rate for 2006 will come in below 1%.2 The