With the noise around US tariffs and war in the Middle East fading, at least for now, we still forecast that the 10-year Treasury will rise to 4.5% by end-2025. That is based on our view that the Fed will stay on hold until early next year, after which it will deliver only two 25bp cuts, while investors seem to think cuts will resume much sooner and go further. 

Elsewhere, we expect the 10-year JGB yield to rise further given our view that investors are still underestimating how far the Bank of Japan will normalise policy. By contrast, we think long-dated yields in the UK, Canada and New Zealand will se the largest falls as policymakers there cut rates further than current market pricing. 

Meanwhile, we see credit spreads widening gradually this year and next, given our forecasts of slowing US and global GDP growth, with a particularly pessimistic view about the euro-zone and the UK economies.

And we remain cautious about EM dollar sovereign bonds, as fiscal situations in several EMs are gradually deteriorating.

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