2025 capital markets expectations

January 2025

We update our capital markets expectations (“CMEs”) each year in January. Capital markets are dynamic, and regular updates ensure that assumptions accurately reflect the current market environment. Changes in our CMEs are driven by shifts in the capital markets, including factors such as interest rates, credit spreads, cap rates, and equity prices.

  • Yields increased for much of the investment grade bond market, while credit spreads tightened, especially for lower quality credit such as high yield.
  • Stock market valuations continued to rise, especially in the US, where equity markets rallied at a faster pace than the gain in earnings.
  • Cap rates for real estate moved higher, while the rebound in buyout multiples lagged the valuation gains for public markets.
  • Not only did current Treasury yields increase, but projections for future Treasury yields also increased.

Our 10-year CMEs continue to be lower than our 20-year CMEs for every asset class, largely due to a higher assumed “risk-free” rate in the future. The return assumption decreased for two-thirds of the asset classes over the 10-year horizon, while it increased for half the asset classes over the 20-year horizon. Our lower return assumptions over the 10-year horizon implies that investors might be well served by moderating their return expectations for the next ten years.

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