Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Register

23 October 2025

Home / 475

S&P default rates and the risks in bond investing

While yields have increased in Australia, including on investment-grade bonds which are rated in the BBB space, it’s also good for investors to know their money is relatively safe.

Standard & Poor's (S&P Global Ratings) releases a report every year looking at default rates for each categoty of credit ratings over time. The 2022 report will be released in 2023 but the most recent report provides some good illustrations and commentary.

Global and Australian defaults statistics

In 2021, 72 global corporate issuers defaulted but most of these were in the non-investment grade CCC/C/B categories. The only default in 2021 from an Australian corporate was from Australian drilling services provider, Boart Longyear, and this was well flagged.

The majority of defaults were in the US, reflecting the breadth of the bond market over there.

Source: S&P 2022

The statistics show that global default rates in investment-grade have been extremely low over time.

Historically, the Australian default statistics are lower than the Global default statistics, in part due to it being a largely investment-grade market locally but also a concentration towards the major banks, which are all rated AA-.

Over the 30-year study period, investors should take confidence in investment-grade bonds. The table shows the probability of default for AAA rated to CCC/C rated, including average default rates of investment grade, speculative grade and all rated.

Source: S&P 2022

For example, a BBB-rated bond has a probability of default over five years of 1.48%. This increases to 6.19% and 16.67% for a BB and B rated bond. Digging deeper, a US BBB-rated bond has a probability of default of 1.83% implying that an Australian BBB-rated bond would have a probability of default over five years of significantly less than 1.48%.

Again, this shows the safety net of the Australian corporate bond market.

 

Matthew Macreadie is a Credit Strategist at Income Asset Management, a sponsor of Firstlinks. To discuss this topic further and access corporate bonds please reach out IAM. This article is general information and does not consider the circumstances of any investor. Please consider financial advice for your personal circumstances, including eligibility for these investments.

For more articles and papers from Income Asset Management, please click here.

 

  •   14 September 2022
  • 3
  •      
  •   
3 Comments
Lisa
September 14, 2022

Thank you, I have a significant investment allocation in global and Australian BBB bonds, so am heartened and encouraged to read this report.

Warren Bird
September 14, 2022

Thanks for the update Matthew.

Of course, what you haven't said - though it's something that I know you know! - is that default risk still needs to be managed appropriately. The high degree of safety in the Australian investment grade space won’t be much use to an investor who happens to have 10% of their portfolio in the bond that does default.

Yes, it’s a low probability of default, but it’s not zero. I’m going to sound like a broken record, I know, but the way to manage the risk that does exist is to diversify – to hold lots of small exposures to credit risk in different industries, not to hold just a few exposures. The beauty of this is that you don’t have to give up return in order to reduce risk. 100 bonds paying 1.5% above your benchmark will deliver the same gross return as 10 bonds paying 1.5% above your benchmark. But you have a much greater chance of actually earning that 1.5% in a diversified portfolio than a concentrated one.

I wrote about what credit risk is and how to manage it in these two articles 9 years ago. They’re not time-sensitive, so still apply today: https://www.firstlinks.com.au/give-risk-credit-deserves and https://www.firstlinks.com.au/managing-credit-risk-requires-healthy-dose-cynicism

Martin
September 18, 2022

Doesn't seem to deal with non-rated bonds where the problems in Australia seem to be. Covid tripped a few up/

 

Leave a Comment:

RELATED ARTICLES

Opportunities in Floating Rate Notes

Never Evergrande: where to from here?

Four ways corporate loans can benefit your retirement income

Firstlinks is sponsored by:
banner

Most viewed in recent weeks

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

The hidden property empire of Australia’s politicians

With rising home prices and falling affordability, political leaders preach reform. But asset disclosures show many are heavily invested in property - raising doubts about whose interests housing policy really protects.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Latest Updates

A speech from the Prime Minister on fixing housing

“Fellow Australians, I want to address our most pressing national issue: housing. For too long, governments have tiptoed around problems from escalating prices, but for the sake of our younger generations, that stops today.”        

Taxation

Family trusts: Are they still worth it?

Family trusts remain a core structure for wealth management, but rising ATO scrutiny and complex compliance raise questions about their ongoing value. Are the benefits still worth the administrative burden?

Exchange traded products

Multiple ways to win

Both active and passive investing can work, but active investment doesn’t in the way it is practised by many fund managers and passive investing doesn’t work in the way most end investors practise it. Here’s a better way.

Economy

The Future Fund may become a 'bad bank' for problem home loans

The Future Fund says it will not be paying defined benefit pensions until at least 2033 - raising as many questions as answers. This points to an increasingly uncertain future for Australia's sovereign wealth fund.

Investment strategies

Managed accounts and the future of portfolio construction

With $233 billion under management, managed accounts are evolving into diversified, transparent, and liquid investment frameworks. The rise of ETFs and private markets marks a shift in portfolio design and discipline. 

Property

Commercial property prospects are looking up

Commercial property is seeing the same supply issues as the residential market. Given the chronic undersupply and a recent pickup in demand, it bodes well for an upturn in commercial real estate prices.

Infrastructure

Private toll roads need a shake-up

Privatised toll roads in Australia help governments avoid upfront costs but often push financial risks onto taxpayers while creating monopolies and unfair toll burdens for commuters and businesses.

Sponsors

Alliances

Site Map

About Firstlinks

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.