Bond Outlook September 9 2009

Our contention that global rebalancing is underway, both in terms of GDP and consumption, is now being reinforced by developments on the currency front. China has made a further move towards internationalising the RMB by announcing a government bond issue for global markets. We expect demand to be so high that the yield will be very modest. This move, coupled with growing doubts about the wisdom of having only one reserve currency (and concerns about the strength of that currency), has led to renewed USD weakness which we perceive as secular.