Rethinking Risk: Why Credit Defaults Shouldn’t Deter High Yield Allocation

In this evidence-driven report, Pictet Asset Management’s credit specialists challenge misconceptions around corporate defaults and argue for a strategic revaluation of European high yield credit.

Key Insights:

• Risk-Reward Misjudged: Since 2000, European high yield bonds have outperformed equities on a risk-adjusted basis, with lower volatility and smaller drawdowns.

• Defaults Priced In: Historical returns (5.2% annualized) far outweigh default-related losses, proving investors are well compensated.

• Equities ‘Default’ More: Equity markets see higher implicit default rates than high yield credit when measured by severe price declines.

• Recovery Advantage: Bonds benefit from coupons and pull-to-par dynamics, driving superior post-drawdown returns vs. equities.

Don’t let default fear cloud opportunity, read the full report to explore high yield’s strategic potential.