This once again goes to show that the ratings agencies like S&P aren’t biased in one way or another — they’re just behind the cycle. Case in point: S&P has just slashed its expected default rate on junk.
Reuters: S&P said it now expects defaults to decline to 6.9 per cent a year from now from a September rate of 10.8 per cent. On Oct 2, it had said it expected defaults to escalate to 13.9 per cent by August 2010.
Of course, this is hardly news to the market, which has been bidding up junk like crazy for months now.
Here’s a pretty chart on the iShares iBoxx High Yield Corporate Bond ETF (HYG)