In 2016, global junk-bond defaults will rise to the highestlevel in seven years as a prolonged downturn in commodity pricescontinues to wreak havoc on company profits and balance sheets,according to Moody's Investors Service.

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The ratings company forecasts that the speculative-grade defaultrate will reach 4 percent this year, up from 3.5 percent in 2015and the highest level since 2009. The default rate for all ofMoody's-rated corporate issuers is estimated to rise to 2.1percent, also a post-financial crisis high, from 1.7 percent lastyear.

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“Persistently low commodity prices, slowing economic expansion,and widening high-yield spreads will send default rates higher in2016,” Moody's credit analyst Sharon Ou wrote in a Feb. 29report. Diminished credit quality, “combined with the sharpincrease in defaults and rising investor caution, indicate that thecredit cycle is turning.”

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The metals and mining sector had the highest default rate in2015, at 6.5 percent, following by oil and gas, at 6.3 percent,according to Moody's. This came as credit quality plunged in thesecond half of 2015. The weakness has continued into the new year,with Moody's U.S. high-yield credit downgrades outstrippingupgrades by more than four-to-one, on pace for the worst quarterlyratio since the 2009 financial crisis, according to data compiledby Bloomberg.

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Commodity prices have fallen near the lowest levels since atleast 1991, according to the Bloomberg Commodity Index, amidreduced demand for oil, metals and minerals as China's economycools.

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Global high-yield borrowing costs are hovering near the highestlevels in four years, as the debt has declined 1.1 percent so farthis year after plunging 2.1 percent in 2015 percent last year,according to Bank of America Merrill Lynch Indexes. U.S. high-yieldenergy companies have fared even worse, with borrowing costs nearthe highest ever and investors of the debt already facing losses of12 percent this year after a 24 percent decline in 2015.

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