Downgrades far ahead of upgrades for Q4 so far, Moody's says

New York, Nov. 27 - Ratings downgrades are running far ahead of upgrades so far in the fourth quarter, continuing the trend of recent months and threatening the return from high yield bonds, according to Moody's Investors Service.

So far in the quarter, 54 high yield credits have been lowered compared to just 12 upgrades for a ratio of 4.5:1, the rating agency said.

Although that is better than the 4.9:1 ratio of the third quarter, it is still well above the 3.6:1 for the year to September 2001.

"The fact that high yield downgrades still more than quadruple upgrades endangers the credit-market-leading +4.6% estimated total return from speculative-grade bonds since the end of October 2001," Moody's commented.

There is also a slight worsening in investment grade. So far in the fourth quarter, there have been 40 investment grade downgrades and 28 upgrades for a ratio of 1.4:1. By comparison, the third quarter saw a downgrade-to-upgrade ratio of 1.3:1. The figure is much better than the 2.4:1 ratio for the year ended September 2001. By quarter, the peak was 4.9:1 in the first quarter of this year but Moody's noted downgrades were skewed by the reductions to California's formerly investment-grade utilities.

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