Defaults and Returns in the High-Yield Bond and Distressed Debt Market: Review and Outlook

Abstract

High-yield bond default rates on US, Canadian and Mexican high-yield bonds decreased slightly in 2013 and remained well below historical averages. The rate decreased from 1.62% at year-end 2012 to 1.04% for all of 2013. Defaults include straight corporate bonds whose firms went bankrupt, missed an interest payment and did not cure it within the grace or forbearance period, or completed a distressed exchange. The 2013 rate is based on a mid-year market size of $1.39 trillion, up by a sizeable $180 billion from a year earlier. In all, $14.5 billion of defaults were recorded in 2013 (Table 8.1). The historical weighted-average annual default rate is 3.61% over the 43-year period (1971–2013). This weighted-average rate is down compared to 3.82% at the end of 2012. Our weights are based on the par value of high-yield bonds outstanding in each year. The arithmetic annual average default rate dropped to 3.14% from 3.19% one year earlier.