By Timothy Rahill, Jeroen van den Broek and Oleksiy Soroka, CFA
Spreads currently price in the lower end of our expected default rates. In the midst of substantial recent tightening, we feel that current pricing is not realistic with respect to the expected volume of downgrades and our economic outlook. S&P and Moody’s have updated their default rate forecasts.
Moody’s forecast is slightly lower than its previous expectations and is now at just below 10%, and S&P’s trailing 12-month forecast is marginally up now at 8.5%. However, our default rate forecast for the coming