Default risk broadly eased among publicly traded companies in the second quarter.
S&P Global Market Intelligence's RiskGauge model recorded lower median probability of default scores across six of 11 sectors as of June 30, compared to a quarter earlier. The scores represent the median odds of default on debt within a year and are based on financial reports and the volatility of share prices for public companies on major US exchanges, accounting for country- and industry-related risks and other macroeconomic factors.
Energy, consumer discretionary, materials and healthcare all reported quarter-over-quarter rises in median default risk scores. Each of those sectors trailed the broader S&P 500 index's stock market performance during the second quarter as well.
Defaults should slow down in the coming months following a recent rise, according to S&P Global Ratings, which forecasts the rate of US speculative-grade defaults in the previous 12 months to cool to 4.5% by March 2025 from a rate of 4.71% in May 2024. Slower economic growth and high interest rates that force companies to refinance debt at greater cost continue to pressure companies, according to the rating agency. Ratings does not contribute to or participate in the generation of Market Intelligence's RiskGauge scores.
Most, least vulnerable
For the second quarter in a row, publishing companies recorded the highest median probability of default score among US industries at 9.0% from 8.9% at the end of March.
The lowest industry-level probability of default score at the end of the quarter was for regional banks at 0.21%, a slight uptick from 0.17% at the end of the first quarter.
Biggest increases, drops
Diversified real estate activities companies registered the largest increase in median probability of default. It rose 3.9 percentage points during the second quarter to 6.6%. Oil and gas equipment and services saw its median probability of default climb 2.2 percentage points, the second-largest increase in the quarter.
Life and health insurance companies recorded a 2.7-percentage-point drop in its median probability of default score, reversing an increase that occurred during the first quarter.