Bond Outlook May 3rd

Our qualified optimism about world economic rebalancing, which we also describe as a move from a uni-polar to a tri-polar world, is apparently becoming conventional wisdom. Even Stephen Roach (MSI) says this week that he has moved into optimistic mode. He states four reasons for his change of heart:

• Inflation is in check
• Central Banks everywhere are adopting neutral stances on interest rates
• The G7 meeting has led at last to governments taking seriously the need for rebalancing
• China is shifting to domestic demand expansion.