In a new report, Marty Fridson, CIO at Lehmann Livian Fridson Advisors LLC – a wealth management fund specializing in income investing, focuses on speculative high-yield corporate bonds. Fridson has crunched the numbers and has determined that the market is currently pricing in a 10 percent default rate in the energy sector.

Overall Market

As of October 16, the market has priced in an overall speculative-grade 12-month default rate of 5.5 percent. Fridson pointed out that this rate is much higher than Moody’s base-case forecast of 3.4 percent. He suggested the reason for the disparity is that Moody’s forecasting methodology focuses on the general economic outlook and doesn’t fully incorporate the deep distress that the metals and mining and energy sectors are currently under.

Sector Analysis

At the sector level, Moody’s is calling…

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