Pictet AM's Ermira Marika: Do not fear defaults in European credit

Risk misperceptions

Misconceptions about defaults make investors wary of corporate credit. But bondholders are more than sufficiently compensated for taking on that risk, according to our analysis.

Investors are often frightened away from European high yield credit in particular. That is ironic on several counts. First, the very possibility of default is why high yield credit offers premium yield. In fact, our research shows this premium has historically exceeded default-driven losses by a significant margin. Second, those same investors are often happy holding equities, even though they too experience default-like episodes that are both more frequent and severe than they are in credit. Deutsche Bank Research questions length of European equities rally And third, European ...