April defaults climb despite high-yield rally -S&P

NEW YORK, May 7 (Reuters) - While U.S. corporate bonds rallied through April, the U.S. speculative-grade default rate rose, underlining continued deterioration in the credit environment as the U.S. economy still struggles, Standard & Poor's said in a report on Thursday.

S&P said the U.S. 12-month trailing speculative-grade default rate rose to 7 percent in April from 5.4 percent in March and 1.72 percent a year earlier, according to preliminary data.

"Amid persisting economic and financial distress, the number of defaults in the U.S. continued to increase through April," said Diane Vazza, lead author on the report.

"Relevant credit metrics in the U.S. show continued deterioration of credit quality and restricted lending conditions," said Vazza.

Meanwhile, through April, U.S. high-yield, or "junk" rated bond spreads tightenened 232 basis points to 1,200 basis points over Treasuries, its tightest since October, the agency said in separate report on Thursday.

But while April's rally in high-yield bonds was substantial, the agency cautioned that average spreads over Treasuries are still very high.

"After reaching unprecedented highs at the end of 2008, U.S. corporate bond spreads have been on a steady decline through 2009," Vazza said.

For the month of April, 33 U.S. companies defaulted, bringing the total for 2009 so far to 71, S&P said.

The agency expects U.S. speculative-grade defaults to reach nearly 14 percent by the end of this year and 14.3 percent by the end of March 2010. (Reporting by Tom Ryan; Editing by James Dalgleish)