Many companies have had their debt downgraded by ratings agencies, and corporate bond defaults during 2002 amounted to 3.2 percent of the value of bonds outstanding, a rate above the 1991 peak in default rates. Although these statistics are certainly worrisome, a closer examination reveals several mitigating factors.
First, though average spreads of risky corporate debt remain high on an absolute basis, they have recently improved substantially. Spreads on BBB-rated corporate debt have come down nearly one-third since their October 2002 peak, and high-yield spreads are down about one-fifth. Risk as measured by credit default swaps has also come down substantially over the same period.