Deutsche: Market ripe for another default cycle

S&P rating agency reveals that corporate borrowers worldwide have defaulted on $50bn of debt so far this year. The number of delinquent firms has surged at its fastest pace since 2009, led by energy and mining companies which have faced slowing growth, lacklustre demand for base metals and falling oil prices. Deutsche Bank reportedly expects to see a peak in defaults by 2017/18 albeit below previous peaks, at 4% of high-yield and up to 11% in energy and commodities issues.

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Companies around the world have defaulted on $50 billion of debt so far, according to a study by credit rating agency Standard & Poors.

Defaults are rising at their fastest pace since the financial crisis. Five companies missed payments last week, taking the total to 46 for the year.

The trend has been led by energy and mining companies, with a collapse in the oil price at the start of the year leading to panic in the market for high-yield (or junk) bonds.

Peabody Energy, the world's largest privately owned coal producer filed for US bankruptcy protection last week after a sharp fall in coal prices that left it unable to service a recent debt-fueled expansion into Australia.

The company listed both assets and liabilities in the range of $10 billion (£7 billion) to $50 billion (£35 billion), according to a court filing.

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But according to Deutsche Bank, this is just the beginning. The defailt cycle will peak in 2017 and 2018 at 4%, or one in 25 debt issuances, for the high-yield market, rising to 9% to 11% for oil and commodities companies. That's still way lower than past default peaks at as much as 15%.

The prerequisites for another default cycle are there - high outstanding debt, an external shock to companies' business models and the chance of rising interest rates.

Here are the charts: