Expectations of an extremely slow path of normalization and a lower terminal rate are playing out even as global central banks become incrementally more hawkish.
We make few changes to our economic framework this year, and continue to expect G4 10-year yields to reach equilibrium at or just below national nominal GDP.
We expect the effects of regulation and aging populations to increasingly manifest themselves in ultra-long dated yields, especially for countries like the UK, where pension scheme underfunding challenges macro fundamentals as the principal driver of long dated yields.
Credit remains the bright spot in fixed income, and although the current credit cycle is rather mature, our long-term projections of credit spreads, defaults and recovery rates continue to
imply a reasonable return uplift above government bonds.
The emerging market (EM) debt outlook continues to improve, implying that it offers an attractive diversifier to credit portfolios even with current spreads quite close to long-term fair value.
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 (10-15 YEAR RETURN ASSUMPTIONS, LOCAL CURRENCY, %)
Source: J.P. Morgan Asset Management; estimates as of September 30, 2017.
* U.S Intermediate Treasuries, UK Gilts, euro government bonds, Japanese government bonds.
** 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.
ABOUT LONG-TERM CAPITAL MARKET ASSUMPTIONS
Our Long-Term Capital Market Assumptions are part of a deeply researched proprietary process that draws on in-depth quantitative and qualitative inputs from experts across J.P.Morgan Asset Management. We, and many of our clients, rely on the output as a foundation for multi-asset class investing.
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