COVID mutation could raise junk debt defaults - Russell Investments

AMSTERDAM (Reuters) - The new mutation of COVID-19 risks increasing debt defaults among junk-rated companies next year above what was previously anticipated, Russell Investments's global head of fixed income said on Tuesday.

A highly infectious new strain of the virus that has led much of the world to cut off travel ties to Britain could increase the U.S. high-yield bond default rate to 6%-8% in the next 12 months, compared to earlier expectations of 5%-8%, Gerard Fitzpatrick told Reuters.

In European high-yield, where credit quality is perceived as higher, default rates could rise above the 4% the asset manager initially expected, Fitzpatrick said.

"This is...a negative surprise, so if this was to play out with extended lockdowns and it's impacting wider sectors and if sentiment turned more negative on the primary market, then we see this definitely more of a negative risk on default compared to just before."

Fitzpatrick also said the new COVID variant increases the possibility of the Bank of England adopting negative rates.

(Reporting by Yoruk Bahceli; editing by Sujata Rao)