Historical Default Rates by Credit Rating and Recovery

Historical default rates by credit rating rise sharply as ratings fall, and the relationship is closer to exponential than linear. Debt rated AAA by S&P Global has a 10-year cumulative default rate of just 0.67%, while B-rated debt defaults at 21.04% over the same period—roughly 31 times higher. CCC/C-rated debt defaults at 50.43% within ten years. The pattern has held across more than four decades of data, through recessions, financial crises, and pandemic shutdowns, and it shapes how bonds are priced and how much investors can expect to lose.¹

The Rating Scale and the Investment-Grade Line

Credit ratings rank the likelihood that an issuer will fail to pay its debts. S&P Global and Fitch use letter grades from AAA (strongest capacity to pay) down to D (already in default). Moody’s uses a parallel scale from Aaa to C, with numerical modifiers for finer distinctions. The scales align closely: S&P’s BBB- equals Moody’s Baa3, and S&P’s BB+ equals Moody’s Ba1.²

The most consequential boundary on the scale sits between BBB- and BB+. Anything BBB- or above is investment grade; anything BB+ or below is speculative grade, also called high yield. Many institutional investors and regulated entities cannot hold speculative-grade bonds at all, so a downgrade across that line can force selling and widen spreads well beyond what the rating change alone would suggest.³

Default itself is broader than a missed coupon. It includes bankruptcy filings and distressed exchanges, where an issuer offers creditors restructured terms worth less than the original promise. Once any of those events occurs, S&P assigns a D rating. Cross-default clauses in bond and loan agreements can accelerate the damage, since a default on one obligation often triggers defaults on the issuer’s other debts.

Cumulative Default Rates by Rating, 1981–2024

S&P Global’s most recent study covers 1981 through 2024, the most comprehensive long-term dataset available. Two horizons give the clearest picture: five years captures medium-term credit risk, and ten years approximates a full business cycle.¹

AAA: 0.34% at five years, 0.67% at ten years
AA: 0.33% at five years, 0.83% at ten years
A: 0.39% at five years, 1.13% at ten years
BBB: 1.09% at five years, 2.50% at ten years
BB: 5.05% at five years, 9.33% at ten years
B: 14.69% at five years, 21.04% at ten years
CCC/C: 46.53% at five years, 50.43% at ten years

Moving from AAA down through BBB barely changes the picture. The five-year rate rises from 0.34% to 1.09%, a range narrow enough that most investors treat all four investment-grade tiers as broadly safe. Crossing into BB more than quadruples the five-year rate. Dropping to B multiplies it again by roughly three. By CCC/C, nearly half the cohort defaults within five years. The math changes most dramatically at the investment-grade line, which is why that boundary carries so much weight for investors and regulators.

In aggregate, investment-grade issuers default at 0.77% over five years and 1.69% over ten. Speculative-grade issuers default at 13.64% and 19.15% over the same horizons. Investment-grade defaults are rare enough that S&P recorded zero in 2025 and just one in 2024, and since 2010 only seven investment-grade issuers have defaulted in any year of their initial investment-grade status.⁴

Why the B Tier Deserves a Closer Look

The B category is where these numbers become most concrete for individual investors. A five-year cumulative default rate of about 15% means that in a diversified basket of B-rated bonds held for five years, roughly one in seven issuers should be expected to default. Over ten years, it climbs to one in five. The sub-tiers matter, too. B- rated debt has a ten-year default rate of 27.90%, compared to 19.62% for B+.¹ That eight-point gap within a single letter grade is wider than the entire range separating AAA from A.

How the Numbers Move Across Cycles

The rates above are long-run averages. Annual default rates are volatile, tracking the business cycle with a lag and spiking during or just after recessions. Anyone with a shorter time horizon needs to understand the peaks.

The Global Financial Crisis produced the most dramatic spike in the modern dataset. Moody’s speculative-grade default rate sat at 0.9% in 2007, jumped to 4.1% in 2008 as credit markets seized, and surged well above 10% in 2009, driven by collapsing asset values, frozen refinancing markets, and a wave of distressed exchanges.⁵ The 2001 recession produced a different pattern. Defaults clustered heavily in telecommunications and technology, where companies had taken on enormous debt to build infrastructure that never generated sufficient revenue. The overall speculative-grade rate jumped, but the pain concentrated in specific sectors rather than spreading across the economy.

The COVID-19 shock of 2020 created another variant: a rapid spike followed by an unusually fast recovery, as fiscal and monetary support stabilized credit markets. Global defaults climbed sharply that year, particularly in energy, retail, and leisure, then receded as spreads compressed through 2021.

Default Rates by Industry Sector

Default risk is not evenly distributed across industries. Some sectors carry structurally higher rates because they have more speculative-grade issuers, more volatile revenues, or heavier capital structures. S&P’s long-term weighted average default rates by industry from 1981 through 2024 show significant variation.¹

Leisure time and media: 3.41% long-term average, the highest of any sector, driven by the largest concentration of speculative-grade issuers
Energy and natural resources: 3.02%, reflecting commodity price volatility and capital-intensive operations
Telecommunications: 2.47%, elevated by the post-dot-com default wave
Consumer and service sectors: 2.46%
Utilities: 0.43%, among the lowest, reflecting regulated cash flows and limited competition
Insurance: 0.23%, the lowest of all tracked sectors

These averages can shift dramatically in a given year. In 2024, health care and chemicals posted a 4.48% default rate against a 1.67% long-term average, the largest gap between current and historical performance of any sector that year. Investors using long-term averages as a planning tool should recognize that sector-specific stress can produce default rates two or three times the historical norm.

Recovery Rates After Default

Default rates say how often issuers fail. Recovery rates say how much investors get back when they do. The two figures together determine expected loss, which is what ultimately matters for returns.

Recovery varies enormously by where a bond sits in the capital structure. Seniority determines who gets paid first in a bankruptcy or restructuring. S&P’s historical data through September 2025 shows the following mean recovery rates for defaulted bonds:⁶

Senior secured bonds: 57.6% of face value (median 58.9%)
Senior unsecured bonds: 44.9% (median 42.2%)
Senior subordinated bonds: 29.9% (median 18.1%)
Other subordinated bonds: 22.8% (median 9.2%)

The gap between mean and median recovery for subordinated debt is striking. The mean of 29.9% for senior subordinated bonds masks a median of just 18.1%, meaning most recoveries are well below the average and a few unusually generous outcomes pull the mean up. For junior bondholders in a typical default, recovery is closer to a dime or two on the dollar. Subordinated debt often accounts for a small slice of a company’s total debt, and after senior creditors are paid, there is frequently nothing left.

These figures explain why a portfolio of B-rated senior secured bonds can outperform a portfolio of BB-rated subordinated bonds over time, despite the higher-rated label on the latter. Rating and seniority interact, and ignoring either one produces misleading expected-loss calculations.

Municipal Bonds Default Far Less Often at the Same Rating

Investors comparing bonds across asset classes should know that municipal issuers default far less frequently than corporate issuers at every rating level. Moody’s data covering 1970 through 2022 shows the gap is not subtle.⁷

Investment-grade 10-year cumulative default rate: 0.09% for municipals vs. 2.23% for corporates
Speculative-grade 10-year cumulative default rate: 6.84% for municipals vs. 29.81% for corporates
All rated issuers: 0.15% for municipals vs. 10.72% for corporates

The disparity reflects how each type of issuer generates revenue. Corporate bondholders depend on a company’s earnings, which can collapse in recessions or industry disruptions. Municipal general obligation bonds are backed by the taxing power of a government entity, and revenue bonds are supported by essential-service fees from infrastructure like toll roads and water systems. Neither is immune to stress, but both are substantially more stable than corporate earnings. An Aaa-rated municipal issuer has a ten-year default rate of 0.00% across the study period, compared to 0.34% for Aaa corporates.

A BBB-rated municipal bond has therefore historically carried less default risk than a BBB-rated corporate bond, even though both wear the same letter grade. Investors who treat ratings as directly comparable across asset classes will systematically overestimate the risk of municipal holdings.

Fallen Angels vs. Original High-Yield Issuers

“Fallen angels” are bonds that were originally rated investment grade and later downgraded to speculative grade. They behave differently from bonds issued as high yield from the start. The early high-yield market of the 1980s consisted primarily of fallen angels, and default rates during that decade’s recessions were notably lower than the rates seen in the early 1990s, when the market had shifted toward bonds originally issued with speculative ratings.⁸

The pattern has persisted. Since 2005, fallen angel bonds have had an average default rate roughly 60% lower than the broader high-yield universe. The likely explanation is straightforward: companies that once earned investment-grade ratings tend to be larger, more diversified, and better managed than companies that were always speculative. A temporary earnings downturn may push them below the investment-grade threshold, but they often have the operational infrastructure to stabilize and recover. For an investor building a high-yield portfolio, the distinction between a former BBB company now rated BB and a company that has always been BB carries real predictive value on top of the rating itself.

1
S&P Global Ratings. 2024 Annual Global Corporate Default and Rating Transition Study
2
Bank for International Settlements. Long-term Rating Scales Comparison
3
S&P Global. Understanding Credit Ratings
4
S&P Global Ratings. 2025 Annual Global Corporate Default and Rating Transition Study
5
Moody’s Investors Service. Corporate Default and Recovery Rates, 1920-2008
6
S&P Global Ratings. US Recovery Study – Supportive Markets Boost Loan Recoveries
7
Moody’s Investors Service. US Municipal Bond Defaults and Recoveries, 1970-2022
8
Federal Reserve Bank of New York. Understanding Aggregate Default Rates of High Yield Bonds