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Global credit declines at corporates - but not so fast

Global credit quality is still deteriorating but is doing so at a reduced rate in the second quarter, according to Moody's Investors Service.


The proportion of corporate downgrades to upgrades has declined from just under four-to-one to just under three-to-one. While 1.3% of issuers received upgrades in the first quarter, this figure rose to 1.9% for the past three months; this has lowered the downgrade-upgrade ratio.


More worryingly for the global economy is news that ratings in the high quality Aa category fluctuated strongly, with downgrades outweighing upgrades by a ratio of six-to-one: the highest ratio in any ratings category.


"The broad distribution of the Aa downgrades across sectors and regions suggests the global economic downturn was an important factor in the credit deterioration," says Hong Sherwin, Moody's assistant vice president and analyst. "Although the Aa's will generally have few upgrades because there is little room at this rating level to move upwards, the high ratio reveals a marked negative credit pressure reaching these highly rated issuers," he adds.


Moody's has also noted geographic and sector trends. Europe experienced a notable rise in upgrades from 0.6% to 2.7%, while the global airline industry continued its gloomy spell with a third of Moody's rated airlines receiving downgrades - the highest industry rate in Moody's quarterly analysis.

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