Our base case is that US term premia will decline slightly, despite the parlous state of US public finances. Nonetheless, we think investors are overestimating how far the Fed will cut this year; if we’re right then it could limit how much more relief Treasuries get. Our sense is that lon-dated yields will stay close to their current levels in the US and in the euro-zone, rise further in Japan, and drop in the UK.

As for corporate bonds, we project spreads to narrow slightly further given our fairly upbeat view of risky assets and expectation that major DM economies will avoid recessions. 

Similarly, while the outlook for sovereign bonds in emerging markets (EM) is more of a mixed bag, all else equal we think stable long-dated Treasury yields will be a boon for them.

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