In September, the improvement in credit quality was especially pronounced among the riskiest credits: the percentage of the global corporate universe with default probabilities between 1% and 5% decreased by one percentage point to 7.4%. The percentage of companies with default probabilities between 5% and 10% was down 0.1 percentage points to 1.7%. The percentage of the universe with default probabilities between 10 and 20% was down 0.2 percentage points to 1.1% of the universe, while the percentage of companies with default probabilities over 20% was down by 0.2 percentage points to 0.8% of the total universe in September. In March, by contrast, 3.1% of the total universe had default probabilities over 20%.
Kamakuraâs President Warren A. Sherman said Thursday, âThe indexâs continued improvement, especially among high risk credits, is excellent news. Itâs now increasingly obvious that the recession is over for the economy as a whole. That being said, the credit improvement in September seemed to leave a few companies behind. The rated public companies showing the largest rise in short term default risk in September were all in Japan: Japan Airlines, Pioneer Corp, Mizuho Trust & Banking, NIS Group, and Takefuji.â
The Kamakura index uses the annualized one month default probability produced by the best performing credit model of the Kamakura Risk Information Services default and correlation service. The model used is the fourth generation Jarrow-Chava reduced form default probability, a formula that bases default predictions on a sophisticated combination of financial ratios, stock price history, and macro-economic factors. The countries currently covered by the index include Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Hong Kong, India, Ireland, Israel, Italy, Japan, Luxemburg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, United Kingdom, and the United States.