The share of U.S. corporate bonds affected by downgrades was 6.2% in 2012, down from 8.1% in 2011, but above the year's 4.4% upgrade rate (versus 5.8% in 2011). The market's profile continued to evolve with the modest but persistently negative rating drift, according to Fitch Ratings.
The top tier -- the slice of U.S. corporate bonds rated 'AAA' or 'AA' -- remained stuck at just over 9% of market volume.
The middle tier of 'A' to 'BBB' held steady at close to 69% of outstanding issues. However, rating and issuance momentum continued to boost the 'BBB' pool which reached a new high of 32.1% ($1.4 trillion versus $1.0 trillion in 2009, up 44.3% compared with a market growth rate of 21.4% over the same period).
Issuance activity totaled a considerable $905.6 billion in 2012, an increase of 32% year over year (and exceeding the year's scheduled maturities by a three-to-one margin). Not surprisingly, the vast majority (95%) involved fixed-rate bonds.
Across the pool of industrial bonds -- the engine of the market's growth since 2009 and a universe now $3.1 trillion in size -- the par weighted average coupon of outstanding issues fell to 5.89% from 6.38% at the end of 2011 and 6.84% in 2009.
Financial issuance in 2012 was also heavily fixed rate. The par-weighted average coupon of outstanding fixed rate financial bonds fell to 5.27%, down from 5.72% at the end of 2011.
The lower market downgrade rate in 2012 was due to less volatility in the financial sector. The share of high-grade financial volume that was downgraded fell to 5.3% in 2012 from 18.2% in 2011. However, financial upgrades remained limited.
Among industrials downgrades actually rose year over year across both the investment, and speculative-grade components of the market. Downgrades moved 4.1% of high-grade industrial volume in 2012 and upgrades, 2.8% - compared with 2.1% and 3.6%, respectively in 2011.
For a full view of U.S. corporate bond market rating and issuance trends please see 'Fitch U.S. Corporate Bond Market: 2012 Rating and Issuance Activity' available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.