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Q3 2025

Capital Markets Outlook

August 2025

 

 

 

 

Highlights

Macro
  • The global economy Is likely to slow amid trade and policy turbulence.
Rates
  • Fiscal policy uncertainty, not current fundamentals, is keeping the Fed on pause.
Credit
  • Investment-grade corporates can help diversify investors’ credit allocation

  • Technicals and fundamentals remain supportive of High-Yield.
Emerging-Market Debt (EMD)
  • We see opportunities in EM corporates.
Equity
  • Stocks touched record highs after a volatile first half.

  • Multiyear US stock surge left non-US stocks at huge discount
 
  1. Rates
  2. Credit
  3. EMD
  4. Equity

Macro

The Global Economy Is Likely to Slow Amid Trade and Policy Turbulence

Global macro outlook: The next six months
Six gauge charts showing trends in economic activity, monetary policy, yields, inflation, fiscal impulse, and USD.

As of June 30, 2025
Source: AB

Current analysis and forecasts do not guarantee future results.

Rates

Navigating Global Rates

UST Yields Look Low Compared to Attractive USD Hedged Global Yields
Percent
Bar chart with countries and bond ratings on the axes, displaying hedged and unhedged bond yields for each country.

As of June 30, 2025
Source: Bloomberg and AB

Softer UK Employment Data Pointing to Further Rate Cuts
Bar and line graph with months from Jan 22 to May 25 on the X-axis and PAYE employee growth on the Y-axis.

As of June 30, 2025
Source: Bloomberg and AB

JGB Curve: Room for Flattening
Line graph comparing yield curves for June 30, 2007 (blue) and June 30, 2025 (yellow), 0-30 years.

As of June 30, 2025
Source: Bloomberg and AB

Past performance does not guarantee future results.
UST: US Treasury; PAYE: pay as you earn; JGB: Japanese government bond
Hedged yields are hedged to US dollars. Japanese yield tenors are represented by the following indices: GJGC2, GJGC5, GJGC10, GJGC15, GJG20 and GJG30.

Credit

Investment-Grade Corporates Can Help Diversify Investors’ Credit Allocation

Net Supply Remains Manageable in the Face of Strong Demand
US IG supply (billions)
Bar chart with time on the X-axis (2020–2025), financial values on Y-axis; bars for gross and projected, line for net values.

As of June 30, 2025
Source: Bloomberg, J.P. Morgan and AB

Yields Are Compelling, While Spreads Are Tight
Percent
Bar chart showing Yield to Worst and OAS spread data over a 25-year period, with time on the X-axis and spreads on the Y-axis.

Average since January 1, 2000
As of June 30, 2025
Source: Bloomberg, J.P. Morgan and AB

Spread Compression in Recent Years Is Largely Driven by the Long End
OAS (basis points)
Bar chart comparing Current OAS and 10-Year Average across Overall Index, 1–3, 5–10, and 10+ Year categories.

Index represented by Bloomberg US Corporate
As of June 30, 2025
Source: Bloomberg, J.P. Morgan and AB

Historical and current analyses do not guarantee future results.
IG: investment-grade; OAS: option-adjusted spread; YTD: year to date
*Full-year 2025 projection from J.P. Morgan

EMD

We See Opportunities in Emerging-Market Corporates

EM Corporates Offer Strong Risk-Adjusted Returns…
Sharpe ratios (2015–2025)
Bar chart comparing average credit quality of various fixed-income asset classes, with labels for HY and IG categories.

As of June 30, 2025
Source: Bloomberg, J.P. Morgan and AB

…with Robust Fundamentals
Net leverage
Line graph with time (2012-2024) on the X-axis and corporate ratios on the Y-axis, comparing US and EM Corporates.

Through December 31, 2024
Source: Bloomberg, J.P. Morgan and AB

BB-Rated Corporates Offer Attractive Spread Pickup with Minimal Default Risk
Bar chart with credit rating categories on the X-axis and spreads/default rates on the Y-axis.

As of June 30, 2025, and average default rate from 2010 to 2024.
Source: Bloomberg, J.P. Morgan and AB

Current analysis does not guarantee future results.
EM: emerging-market; IG: investment-grade; HY: high-yield; Sov.: sovereigns; Agg.: aggregate
EM HY corporates represented by J.P. Morgan CEMBI Broad Diversified-HY; US high yield by Bloomberg US High Yield; EM corporates by J.P. Morgan CEMBI Broad Diversified; European high yield by Bloomberg Pan Euro High Yield; EM IG corporates by J.P. Morgan CEMBI Broad Diversified-IG; EM sovereigns by J.P. Morgan EMBI Global Diversified; US investment-grade corporates by Bloomberg US Corporate Investment Grade; global aggregate by Bloomberg Global Aggregate; US aggregate by Bloomberg US Aggregate; and Euro IG by Bloomberg Pan European Aggregate Corporate.

Equity

Stocks Touched Record Highs After a Volatile First Half

MSCI ACWI
January–June 2025*
Line chart showing stock fluctuations with three labeled sell-off and policy events from Jan to June.

As of June 30, 2025.
Source: FactSet, FTSE Russell, MSCI, S&P and AB

Regional Returns
January–June 2025 (USD)†
Horizontal bar chart comparing global stock market returns by region, with each bar representing a different regional category.

As of June 30, 2025.
Source: FactSet, FTSE Russell, MSCI, S&P and AB

Past performance is no guarantee of future results. 
*Event dates are approximate. 
†Europe ex UK represented by MSCI Europe ex UK Index, UK by MSCI United Kingdom Index, emerging markets by MSCI Emerging Markets Index, Australia by MSCI Australia Index, Japan by MSCI Japan Index, US large-caps (cap Weight) represented by S&P 500, US large-caps (Equal Weight) by S&P 500 (equal Weight), China by MSCI China A Index and US small-caps by Russell 2000 Index

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