Euro junk bond defaults hit £15bn

THE slowdown in the European economy is triggering a surge in defaults on junk bonds.

In the first five months of this year, European firms have defaulted on e24bn (£15bn) of bonds, more than the total defaults since 1985, according to a study by credit rating agency Moody's Investors Service.

Among the largest defaults were NTL Communications, Britain's largest cable TV company. The pace of defaults in Europe exceeds the default rate in the US junk market, though this reflects the fact that the European market is much smaller and newer.

It really began to develop only in the mid-1990s whereas America's huge junk bond market took off during the takeover boom of the 1980s.

The rising default rate in Europe is a source of concern at a time when, particularly in Germany, credit conditions for medium-size companies have become much more stringent and when it has become increasingly difficult to finance hi-tech firms through venture capitalists or stock market flotations.

The news will also add to pressures on institutional investors in parts of Europe who have moved heavily into high-yielding junk bonds to try to improve their rate of return to meet payouts to policyholders.