Journal of Credit Risk

Default and recovery rates of Asia-Pacific corporate bond issuers, 1990–2003

Praveen Varma


This study investigates Asia-Pacific corporate bond rating transitions, defaults, and defaulted bond recoveries. As the size of the market continues to grow and mature, the speculative-grade part of the bond market has become a significant portion of the total bond market in the Asia-Pacific region. Despite this growth, Asia-Pacific issuers historically have had higher average ratings and lower default rates than the global sample. However, the speculative-grade Asia-Pacific issuers – excluding Japan – have higher default rates than their global counterparts. Most of the bond defaults happened during the Asian financial crisis of 1998–1999. Since the financial crisis the default rates have declined as companies have been able to repair their balance sheets. One exception to this pattern of higher default rates in the region is Japan, where there has been only one Moody’s-rated default since 1990. Japan’s relatively limited rated-bond default experience is attributable to its higher credit quality (bond market access has historically been very limited for speculative-grade issuers) and the general practice of its government and financial institutions to support companies facing financial distress. The recovery rates and annual credit losses for defaulted bonds in the region are comparable to those in Europe and North America.

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