Higher-for-longer interest rates, the possibility of a recession, and lingering inflation suggest that the credit conditions for borrowers in North America will likely deteriorate. We rate approximately 40% of our North American speculative-grade issuers 'B-' and below, with health care and high technology having more than half of their rated portfolio in these lower-rated categories. Both sectors are highly concentrated in the U.S. and are facing increased interest expenses, which is pressuring their margins and cash flow. We expect the U.S. trailing 12-month speculative-grade corporate default rate will reach 4.5% by June 2024, which is just above the 4.1% long-term average (see chart 5). If a recession occurs--mainly because inflation and interest rates remain high--the default rate could reach our pessimistic case of 6.5% (109 defaults).1 Year to date (YTD), as of Aug. 31, 2023, there have been 73 defaults (3.7%).