Default Rates in the High-Yield Market

Abstract

1. Sam DeRosa-Farag 1. Director of global high-yield portfolio strategy at Donaldson, Lufkin & Jenrette in New York. 2. Jonathan Blau 1. Senior vice president at Donaldson, Lufkin & Jenrette in New York. 3. Peter Matousek 1. An associate at Donaldson, Lufkin & Jenrette in New York. 4. Indra Chandra 1. A research assistant at Donaldson, Lufkin & Jenrette in New York. The author draws comparisons among three studies of default rates in the high–yield markets. Using data through December 1998, they show how the different methodologies of the three studies can produce very different results. While default rates increased during 1998, they remain below historical averages, and spreads as of the end of 1998 more than adequately compensated investors for the likelihood of a recession. Default rates by security type, rating, industry, seniority, and size of issue are examined in detail.