Fitch credit rating agency warned that defaults among companies in the United States and the eurozone will rise next year, as the impact of tightening monetary policy by central banks will continue to affect the performance of the economy.
Default rates among issuers of corporate bonds and US debt have jumped from 1.6% to 3.04% over a 12-month period since the end of 2022, for leveraged loans.
Defaults also reached 127 defaults among companies as of October, a high of 13% above the 5-year average.
Fitch estimates that default rates could rise to between 3.5% and 4% for leveraged loans in 2024.
According to the credit rating agency, the US Federal Reserve will take a less deep trend than US markets expect on its monetary policy, as it expected the US Federal Reserve to cut the interest rate by 75 basis points next year.
She also believes that high borrowing costs will continue to be a barrier for companies during 2024.
Stressed bond and loan issuers appear to be facing increasing operational challenges, achieving low or negative free cash flows, or unable to increase earnings before interest, taxes, depreciation and amortization to reduce high debt burdens.
The report continued: the forecasts for high rates of defaults in 2024 reflect macroeconomic headwinds, including the impact of high interest rates, and the slowdown of the US economy in 2024, compared to this year.
