The credit crunch currently constraining consumers and financial institutions threatens to spread to high-grade corporate bonds, according to analysts. Defaults on corporate bonds are at an all-time low at 1%, but more corporate bonds may default in 2008. Moody’s predicts default rates to rise to 10% in 2008, well above the historical average of 5%. Constrained corporate credit may may be another signal of the looming recession.

Financial Times – Default rates fail to detect cold front approaching
Financial Times - Default rates ‘to surge from 26-year low’
Bloomberg – CDO Losses Driving Credit-Default Swaps to Record, Analysts Say
Wall Street Journal – New Hitches In Markets May Widen Credit Woes
Wall Street Journal – Credit Jitters Hit Leveraged Loans
Bloomberg – Junk Bond Default Rate to Rise Ninefold, Altman Says
Fitch Ratings (free login) – Developments in the US Leveraged Loan and CLO Markets