U.S. companies’ ability to raise cash deteriorated further in March, signaling the risk for more defaults among junk bonds, as liquidity downgrades in the energy industry reached a record high, Moody’s Investors Service said on Monday.
The rating agency said its “Liquidity-Stress Index” (LSI) rose to 10.3% last month from 9.0% in February. Its gauge on the energy sector hit a record high of 31.6% from 27.2%.
Moody’s (MCO) projected the default rate on U.S. junk bonds would grow to 5.3% in February 2017 from 3.6% in March.
“The LSI is traveling the same path it took at the start of the last major turn in the credit cycle that started in mid-2007, which culminated with a peak in the LSI of 20.8% in March 2009,” Moody’s Senior Vice President John Puchalla said in a statement.
“The difference in this cycle is that weakness in energy is fueling the gains, rather than broader liquidity pressures,” he said.