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FIXED INCOME ASSUMPTIONS

IN BRIEF

  • Anticipating flatter curves and lower yields, we gradually shift our equilibrium interest rates lower across major G4 markets.
  • For the first time since the financial crisis, the current U.S. cash rate is modestly above our forecast of equilibrium. Cash rates for the rest of the G4 are still far below our equilibrium assumptions and only expected to converge to the long term equilibrium very gradually.
  • In a much larger corporate bond market, duration has risen significantly and average credit quality has notably declined. But we do not expect these trends to continue over our forecast horizon; expected returns are somewhat improved from last year.
  • For emerging market debt, our spread assumptions are unchanged, but more attractive starting valuations mean our return expectations are up significantly. However, the non-normal distribution of returns means the risk of outsize losses is substantially larger than these improved Sharpe ratios suggest.

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Lower equilibrium yield and return assumptions reflect expectations of very gradual rate normalization, leading to a lower terminal rate

DEVELOPED MARKET EQUILIBRIUM YIELD AND RETURN ESTIMATES (10- TO 15-YEAR RETURN ASSUMPTIONS, LOCAL CURRENCY, %)
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Source: J.P. Morgan Asset Management; estimates as of September 30, 2018.
* Investment grade corporate bonds. ** Emerging market sovereign debt.

 

VIEW OTHER ASSUMPTIONS

Examine our return projections by major asset class, their building blocks and the thinking behind the numbers.
 
 
 


2019 Long-Term Capital Market Assumptions

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