Bangkok--25 Dec--Standard & Poor's Global bond markets have cause to be nervous on myriad fronts at the close of 2007, ranging from rising risk premiums, higher probability of downgrades, accelerated distress (from very low levels), and the looming specter of an eventual upswing in the default cycle from all-time lows, according to an article published today by Standard & Poor's. The report, titled "Annual Wrap-Up And 2008 Outlook: The Credit Cycle Bares Its Teeth (Premium)," says much of the maelstrom in the short-term debt and mortgage-related markets has shaken investor sentiment considerably, even though the collateral damage in the corporate bond market has so far been limited. "In 2008, credit quality will deteriorate from present levels, with downgrades and defaults picking up as the year progresses," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "In contrast with the two prior years, the deteriorating credit quality will be propelled to a greater extent by factors linked with the underlying operating performance rather than in response to bond-negative financial strategies, such as acquisitions, buybacks, and dividend payouts." Defaults will tick up from record lows near 1%, more meaningfully in the later half of 2008 and in 2009. Our 12-month forward (November 2008) speculative-grade baseline default rate forecast is 3.4% in the U.S., much higher than the current level, but still lower than the 4.5% historical average. Financial strategies implemented during the preceding five boom years have insulated even the most vulnerable entities, allowing them to continue meeting financial obligations and forestalling payment default despite the tighter lending landscape. The default-rate trajectory should escalate over the next couple of years based on the cumulative impact of the changes in the credit-pricing environment, an increase in refunding needs, and a slowing economy. Ms. Vazza added, "Our projections are based on a decidedly gloomy economic outlook for 2008, underpinned by expectations that the world's largest economy will falter on the cliff of recession. The baseline forecast in the U.S. anticipates economic growth to average near 1% for the next three quarters. The housing decline will have its biggest negative impact during this period, and orders data suggest slower capital spending. A serious risk confronts the U.S. consumer, as households feel the pinch of lower home prices and higher energy costs." The report is available to RatingsDirect subscribers who have upgraded their package to include the Global Fixed Income Research add-on. RatingsDirect is the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. If you are not a RatingsDirect subscriber with the Global Fixed Income Research add-on, please contact your local Standard & Poor's representative or [email protected] for further information. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Members of the media may request a copy of this report by contacting the media representative provided. Media Contact: Mimi Barker, New York (1) 212-438-5054, [email protected] Analyst Contact: Diane Vazza, New York (1) 212-438-2760 Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data. With approximately 8,500 employees, including wholly owned affiliates, located in 21 countries, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com. Key Contacts: Americas Media Relations: (1) 212-438-6667 media_ [email protected] Americas Customer Service: (1) 212-438-7280 [email protected]