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IN BRIEF

  • 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.
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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 (10-15 YEAR RETURN ASSUMPTIONS, LOCAL CURRENCY, %)
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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.

 

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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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