Bond rally may have a bit further to run

We think the rally in developed market government bonds will continue for a while yet, as some major central banks, including the Fed, ultimately cut by more than investors seem to expect. But we anticipate that yields will generally settle at much higher levels than prior to COVID, and the falls we expect next year are, for the most part, smaller than those that have already happened over the past month or so. Meanwhile, we expect “risky” assets, including in emerging market economies, to tread water in the near term, as growth slows (or, in some cases, turns negative) in major economies. That said, we still project them to make gains over 2024 as a whole, helped by an improved growth picture by the end of the year and lower “safe” asset yields. We suspect that equities will make particularly big gains, especially in the US, as enthusiasm around AI grows.