European credit—an income investor's best-kept secret?

European credit has delivered superior long-term risk-adjusted returns to U.S. credit, but investors should exploit relative value dynamically rather than maintain an automatic regional bias.

• At the end of the second quarter of 2026, the European debt universe covered by the analysis totalled US$7.5 trillion, large enough to support liquidity across many higher-yielding assets.
• Over the 10 years to June 30, 2026, European loans outperformed U.S. loans by 1.1% annually, or 16.0% cumulatively, despite 1.0% higher annual volatility.
• European high-yield corporate bonds exceeded U.S. high yield by 0.4% annually, or 5.1% cumulatively, while showing 0.4% lower annual volatility; European investment-grade bonds outperformed by 0.5% annually, or 4.6% cumulatively, with 1.9% lower volatility.
• The authors attribute the advantage to higher spreads in alternative credit, stronger creditor protections, fewer aggressive liability-management exercises, strict directors’ liabilities and longer-term institutional ownership.
• Relative value has shifted over time: European loans were more attractive from 2013 to 2015, U.S. loans gained the advantage in the late 2015 period, and returns have favored Europe again since 2018.

Takeaway: Investors should include European credit in a diversified, multi-asset credit portfolio and use bottom-up research to switch between regions as valuations and market conditions change; past outperformance does not guarantee that a permanent European bias will work.