While renewed concerns about US growth have prompted investors to revise down their expectations for the Fed funds rate and have pushed Treasury yields down recently, we think those falls will revert before long. For one, although we are not especially upbeat about growth in the US economy this year, we think fears about it are overdone. And we anticipate that inflationary pressures will strengthen as Trump brings in further tariffs in the second quarter of this year, outweighing slowing growth. In turn, we expect the Fed to stay pat for the remainder of the year and forecast the 10-year US Treasury yield to settle at 4.75% by the end of 2025.

By contrast, we project long-dated bond yields to fall over the rest of 2025 in the UK, and New Zealand, given our view that low inflation and weak growth will push those central banks to deliver more loosening than what is priced into money markets. And we expect those in Germany and to fall a bit too, despite the prospects of increased fiscal spending putting a higher floor under them than would otherwise be the case. Meanwhile, Japan remains the outlier among developed markets - we expect an aggressive hiking cycle from the Bank of Japan to push the 10-year JGB yield as far up as 1.75%.

That view translates into corporate bond yields rising in the US and falling back slightly in the UK and the euro-zone, as moves in underlying risk-free rates outweigh the moves we expect in credit spreads.

And, although emerging markets are a mixed bag, we think local-currency sovereign bond yields in several places will fall by the end of this year as the EM easing cycle broadens on aggregate. Meanwhile, we expect the yields of dollar-denominated sovereign bonds to pick up a bit.

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