Fitch expects US, European default rates to rise this year

By Ovunc Kutlu

ISTANBUL (AA) - Fitch Ratings said Thursday that it expects default rates to increase in the US and Europe this year.

"Fitch Ratings believes highly levered loan and bond issuers across the U.S. and European markets will struggle to participate in the anticipated primary market recovery during 1Q24, as high interest costs continue to erode cash flows amid slower economic growth," it said in a statement.

The rating agency said falling operational performance and rising input costs such as wage inflation have constrained liquidity in the US, which challenges companies' growth initiatives.

"In Europe, issuers in the consumer discretionary sector, interest-rate sensitive sectors such as real estate, or margin-pressured sectors like telecom are the most vulnerable and likely to contribute to higher bond and loan default rates in 2024," said the statement.

Fitch said it estimates bond and loan defaults to rise further toward 4% in Europe this year, while it anticipates US default rates across leveraged loans and high yield to range from 3.5%-4.5% in 2024.