Default risk broadly ticks higher across most US sectors

Default risk ticked higher for companies with publicly traded stocks in the US across most sectors at the end of the first quarter.

S&P Global Market Intelligence's RiskGauge model recorded higher median probability of default scores across nine of 11 sectors as of March 31 compared to the same data as of Dec. 29, 2023. 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.

Stocks have reached record highs so far in 2024 as the surge in interest in artificial intelligence buoys technology stocks and investors anticipate easier financial conditions from the Federal Reserve's expected cuts to benchmark interest rates.

Still, interest burdens should remain high throughout most of 2024, according to S&P Global Ratings, which forecast an uptick in the share of speculative-grade rated companies to default by December to 4.75%, up from 4.5% in December 2023. Ratings does not contribute to or participate in the generation of Market Intelligence's RiskGauge scores.

Most, least vulnerable

Publishing companies recorded the highest median probability of default among industries at 8.9%, up from 8.5% at the end of December 2023.

Regional banks recorded the lowest median default risk score at 0.17%, a slight uptick from 0.16% three months earlier.

Biggest increases, drops

Insurance companies recorded the highest increases in the median probability of default scores. Life and health insurers registered a 2.6-percentage-point rise as of March 31 compared to the end of December 2023, while the comparable score for property and casualty insurers rose by 2.3 percentage points.

Other specialized real estate investment trusts — a category of REITs that does not include retail, single-family, healthcare and a broad selection of specific property types — recorded a 0.9-percentage-point fall in median probability of default, the largest drop of any industry.