Real Asset Debt

Navigating Sector Default Risk in the High-Yield Market: Lessons from Past Sector Default Cycles

White Paper

Mar 12, 2025

Tightening financial conditions in recent years led to a rise in defaults on high-yield bonds. While we believe high-yield default rates may have reached their peak as macroeconomic conditions have eased, we believe they are likely to remain near historical averages in the low-to-mid single digits.

The risk in the high-yield market, however, is not uniform. There are times when certain sectors experience a major default cycle with default rates rising to the mid-teens, leaving investors exposed to material negative investment outcomes. Against this backdrop, we believe a look back at past major sector default cycles can offer lessons to help investors better navigate default risk in today’s high-yield market.

In this paper, we analyze three past examples of major default cycles within the high-yield space and discuss what these cycles can teach us about the common characteristics of sector default crises and why it’s important to look beyond just leverage metrics when analyzing an issuer’s default risk.

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