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From an investment perspective, default rates are by themselves not of paramount importance. It is perfectly possible for a portfolio of high-yield bonds to suffer defaults and to outperform treasuries at the same time, provided that the yield spread of the portfolio is sufficiently high to offset the losses from the default.
Since holders of defaulted bonds typically recover a portion of the par amount of their investment, the default loss rate is lower than the default rate. Therefore, highlighting exclusively on default rates merely highlights the worst possible outcome that a diversified portfolio of high-yield bonds would suffer, assuming that all defaulted bonds would be totally worthless.

1.5.2. Liquidity Risk

This refers to the ease with which investment in the bond can be liquidated at a price near its par value. Investors often find that they must hold on to junk bonds rather than sell them because they come from small companies, and consequently, are not as easily traded in the marketplace.

1.5.3. Interest Rate Risk

This refers to the risk of a bond changing in value due to changes in the structure or level of interest rates. When interest rates rise, bond prices will fall, which means that the bond is losing in value. However, high-yield bonds are not as influenced by interest rates as higher-rated bonds are. This is because they have higher yields and shorter maturities. Interest rates are apt to change less over a shorter period. The market behavior of junk bonds is more in tune with overall changes in the economy, such as a recession.

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* Contributed by -
Neha Agarwal & Padmakar Kulkarni,
PGDIM - XI,
NITIE, Mumbai.