April 6 (Bloomberg) -- About 53 percent of U.S. companies that issued high-risk, high-yield bonds will default over the next five years, according to Jim Reid at Deutsche Bank AG.

The figure compares with a 31 percent five-year rate in the early 1990s and 2000s, and as much as 45 percent “in a very, very different market in the Great Depression,” Reid, the London-based head of fundamental credit strategy, wrote in a note to clients today. The estimate is based on the premium investors demand to hold the notes and assumes recoveries from the defaults will be zero, Reid wrote.

“Given that this recession will easily outstrip the 90s and 00s, then 40 percent high-yield defaults over five years seems to be a minimum starting point for this default cycle,” he wrote. A 50 percent rate is “not unrealistic.”

Almost $1.3 trillion of losses and writedowns at financial institutions worldwide have combined with the deepest economic slowdown since World War II to weaken companies’ finances and sap their ability to pay debt. According to Moody’s Investors Service, the 12-month default rate will rise to 22.5 percent in Europe and 13.8 percent in the U.S. by the end of the year, the New York-based firm said in a report last month.

Moody’s expects the five-year default rate to be about 29 percent by February 2014, according to the report.

“The main catalyst for this crisis, namely property, is still vulnerable around the world,” Reid wrote. U.S. real estate prices still have more than 16 percent to decline, while the figure is almost double that in the U.K., Reid wrote.

“We expect a continued fall in prices for one to two years in the U.S. and longer in the U.K. and Europe,” Reid wrote. The property market is “crucial to consumer spending, the health of banks and the overall economy. The story is certainly not over.”

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

Last Updated: April 6, 2009 06:56 EDT