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Corporate default rates hold firm

Investors will be cheered by further news of global economic stability as Moody's, the rating agency, reports the global speculative-grade for corporate bond default held firm in October at 5.7%, the same rate as September.

Defaults in October totalled $170 million and were accounted for by just two issuers - American Plumbing and Mechanical ($95 million) and Piccadilly Cafeterias ($75 million). This is the lowest monthly total - for dollar volume and the number of issuers - for 2003.

David Hamilton, director of default research at Moody's, explains: "The lower forecasted default rate is a product of several events. First, the actual defaults have been coming in well below expectation. Second, refinancing is easier, and lastly, the state of the economy has not acted as a drag."

Though the US, in particular, has produced more encouraging GDP figures in recent times, it is improvements in credit quality that that have been the driving force. The positive economic news "hasn't really helped," confirms Hamilton, "but it certainly has not hurt, either."

The European default rate fell from 7.4% in September to 7.1% in October - the sixth month in a row without a European credit default.

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