High-yield issuers must pay up as risks increase

Looming corporate defaults, escalating geopolitical risks and a slowdown in China’s economy is leading to a rise in the cost of financing for high-yield borrowers, prompting investors to exercise caution and demand higher compensation

The trailing 12-month high-yield default rate for Asia-Pacific corporates as of end-July was 4 1%, up from 2 2% at end-2013, according to a recent Moody’s report The default rate for the sector is expected to peak at 4 3% in September

The rise in the default rate reflects the slowing of the Chinese economy as it rebalances and credit stays tight, the rating agency added Also, Asean economies, particularly those that are commodity reliant, are vulnerable to the growth correction...