UBS Equities-Global Strategy _July default report seasonal stability in ...-117176291

ab11 August 2025Global ResearchGlobal StrategyJuly default report: seasonal stability in global credit In this month's US/EU Credit Default and Recovery Rate Analysis, we update monthly default statistics and provide insights covering issuers in the following markets: US HY bonds, US Leveraged Loans, European HY bonds and European Leveraged Loans.Key Takeaways:1. Some stability in credit stress after the June storm (Figures 3-14): We have three key takeaways: first, higher frequency par weighted default rates stabilized in July across US high yield, leveraged loans, and EU leveraged loans and declined notably for EU high yield. Lighter maturities and seasonal patterns typically result in lower default counts in July, so we would not read too much into this data point. Second, in US HY par weighted default rates by sector are lowest in tech and industrials, largely in-line with conclusions from our HOLT analysis of HY credit metrics; in US LL consumer noncyclicals and industrials have below average defaults. Third, more broadly US household delinquency rates are back near long-run averages, driven by the spike in student loan and rising mortgage loan rates. Auto and card delinquencies, however, have stabilized and are slowly receding. Lastly, CRE delinquencies have been very stable through the summer.2. US HY records 1 defaults in July after 1 default in June (Figures 15-19): LTM issuer default rate rose by 0.1% to 1.6% in July but is lower y/y by -0.2%. LTM Par default rate remained stable m/m and y/y at 0.8% in July. We expect YE 2025 default rates to finish at 1.25%. Recovery rates rose by 1pp to 47% m/m.3. US LL saw 2 issuer defaults in July after 5 in June (Figures 20-24): LTM issuer default rate rose +0.1% m/m to 3.3% in July and is higher y/y by +0.7%. Par default rate remains stable m/m and y/y at 2.6%. We expect default rates to finish at 2.5% by YE, close to current spot levels. Recovery rates remained stable m/m at 52%. 4. July saw no European HY or LL defaults after 1 EU LL default in June (Figures 25-34): EU HY LTM issuer/par default and recovery rates remained stable at 1.8/1.3/42% m/m with no defaults in July. EU LL LTM issuer/par default rates fell -0.3% to 0.8%/1.9% m/m with no defaults in July. EU LL recovery rate fell 5pp to 74%.Report notes:• Default criteria: bankruptcies, distressed exchanges, restructuring and missed payments where financial impairment has occurred.• Recovery rate: based on prices observed on the date of default.This report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 11. Global StrategyGlobalMatthew Mish, CFAStrategistmatthew.mish@ubs.com+1-203-719 1242Julien ConzanoStrategistjulien.conzano@ubs.com+44-20-7567 2067Bhanu BawejaStrategistbhanu.baweja@ubs.com+44-20-7568 6833Global Strategy 11 August 2025ab 2Figure 1: Current Default Statistics SummarySource: UBS/CS Indic