Historical Default and Recovery Rates by Credit Rating

Historical default rates by credit rating rise sharply and non-linearly as you move down the scale. Corporate debt rated AAA by S&P Global has a 10-year cumulative default rate of just 0.67%, while debt rated B defaults at 21.04% over the same horizon, roughly 31 times higher.¹ That relationship has held across more than four decades of data, through recessions, financial crises, and pandemic shutdowns, and the numbers behind it drive bond pricing, loan covenants, and regulatory capital rules.

Reading the Rating Scale

Credit ratings rank an issuer’s relative likelihood of failing 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 (1, 2, 3) for finer distinctions within each letter category.² The scales line up closely: S&P’s BBB- equals Moody’s Baa3, and S&P’s BB+ equals Moody’s Ba1.

The most consequential line on the scale sits between BBB- and BB+. Debt rated BBB- (Baa3) and higher is investment grade; debt rated BB+ (Ba1) and lower is speculative grade, or high yield.³ Many institutional investors and regulated entities cannot hold speculative-grade bonds, so a downgrade across that boundary can force selling and widen spreads on its own.

“Default” in rating agency terms is broader than a missed coupon. It covers bankruptcy filings and distressed exchanges, where creditors accept restructured terms worth less than the original promise. Once any of those events occurs, S&P assigns a D rating.³ Cross-default clauses in many bond and loan agreements can accelerate the damage, turning a single missed payment into a full restructuring.

Cumulative Default Rates by Credit Rating

The figures below come from S&P Global’s study covering 1981 through 2024, the most comprehensive long-term dataset available. Two horizons capture the picture: five years, for medium-term credit risk, and ten years, which 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

The curve is closer to exponential than linear. Moving from AAA down to BBB barely shifts the five-year rate, from 0.34% to 1.09%. Crossing from BBB into BB more than quadruples it. Dropping to B multiplies it by another factor of three. By CCC/C, nearly half the cohort defaults within five years. The single largest jump sits at the investment-grade line, which is why that boundary receives so much attention from investors, regulators, and the issuers themselves.

Aggregated across ratings, investment-grade issuers default at 0.77% over five years and 1.69% over ten years, while speculative-grade issuers default at 13.64% and 19.15% over the same horizons.¹ Investment-grade defaults are rare enough that S&P recorded zero in 2025 and just one in 2024; since 2010, only seven investment-grade issuers have defaulted in any year of initial investment-grade status.⁴

The B Category Rewards a Closer Look

A five-year cumulative default rate near 15% means a diversified basket of B-rated bonds should be expected to lose about one issuer in seven to default over five years, and one in five over ten. The sub-tiers within B matter, too. B- rated debt has a ten-year default rate of 27.90%, compared with 19.62% for B+.¹ That eight-percentage-point gap inside a single letter grade is larger than the entire range separating AAA from A.

How the Numbers Shift Across Cycles

Annual default rates are volatile. They track the business cycle with a lag, bottoming during expansions and spiking during or just after recessions. The long-term cumulative rates smooth that volatility out, but anyone using them as a planning tool needs to remember the peaks.

The Global Financial Crisis produced the sharpest spike in the modern dataset. Moody’s speculative-grade default rate sat at just 0.9% in 2007, jumped to 4.1% in 2008 as credit markets seized up, and by 2009 had surged well above 10% amid collapsing asset values, frozen refinancing markets, and a wave of distressed exchanges.⁵ The entire sequence unfolded in roughly 18 months.

The 2001 recession produced a different pattern. Defaults clustered heavily in telecommunications and technology, where companies had taken on large debt loads to build infrastructure that never generated the expected revenue. The overall speculative-grade rate climbed, but the pain was concentrated. The 2020 COVID-19 shock produced yet another variant: a rapid spike followed by an unusually fast recovery, as fiscal and monetary support stabilized credit markets and spreads compressed through 2021.

Default Rates by Industry Sector

Default risk is not distributed evenly across industries. Some sectors carry structurally higher default rates because they hold more speculative-grade issuers, run on more volatile revenues, or carry heavier capital structures. S&P’s long-term weighted average default rates by sector (1981–2024) show the range clearly.¹

Leisure time and media: 3.41%, 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%, reflecting regulated cash flows and limited competition
Insurance: 0.23%, the lowest of all tracked sectors

Any given year can look very different from the long-term average. 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.¹ Sector-specific stress can push default rates two or three times above the historical norm even when the broader market looks calm.

What Investors Recover When Bonds Default

Default rates tell you how often issuers fail. Recovery rates tell you how much you get back when they do. The two figures together determine expected loss, which is what ultimately drives returns.

Recovery varies sharply by where a bond sits in the capital structure. Seniority sets 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 in the subordinated categories is worth pausing on. A mean of 29.9% for senior subordinated bonds masks a median of 18.1%, meaning most recoveries fall well below the average and a handful of 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 makes up a small slice of a company’s total debt, and after senior creditors are paid, there is frequently little left.

Rating and seniority interact. 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, because the expected loss depends on both figures together.

Municipal Bonds Default Less Often at Every 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 a difference in how the two types of issuers generate revenue. Corporate bondholders depend on a company’s earnings, which can collapse during 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 revenue stream is immune to stress, but both are steadier than corporate earnings. An Aaa-rated municipal issuer has a ten-year default rate of 0.00% across the entire study period, compared with 0.34% for Aaa corporates.⁷

A BBB-rated municipal bond has historically carried less default risk than a BBB-rated corporate bond, even with the same letter grade. Ratings are not directly comparable across asset classes, and treating them that way overstates the risk of municipal holdings.

Fallen Angels vs. Original High-Yield Issuers

Within the high-yield universe itself, one distinction matters more than the letter grade suggests. 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 the recessions of that era 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. 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 base to stabilize and recover. For 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.

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