150 Years of Corporate Bond Defaults

Here’s a bit of a geeky post. This recent academic paper looks at default rates for corporate bonds over the last 150 years. There are plenty of studies of corporate bond defaults, but none that I know of that go back this far.
The results of the study are pretty interesting. The researchers found that there have been several episodes of high levels of defaults. These episodes are tightly bunched together and they’re separated by many years of very low default rates. The Great Depression wasn’t nearly as bad as some of the 19th century panics. In fact, default periods are only weakly associated with bad economies.
The researches also found that bond spreads are about twice the default rate. Plus, spreads don’t have much forecasting ability although stock market returns and stock volatilities do. They found that over the very long haul, corporate bonds fault about 1.5% of the time.

Posted by Eddy Elfenbein on April 28th, 2010 at 2:28 pm

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