The trajectory of the economic cycle is playing out in line with our expectations, and the global economy has entered a second year of expansion (about 4% in real terms). Expansion is likely to be made steadier by corporate optimism (in making investment and hiring decisions). Emerging market growth continues to play a dominant role, and in response, we are selectively setting aside some of our early-year concerns. The recovery is still on track in developed economies, including in Europe. 

After the acceleration of the last months of 2010, the cycle has entered a phase in which neutrality in monetary conditions is likely to return to the norm. Surging oil prices have fed initial pressures on prices and certain central banks (e.g., in Brazil, India and Sweden) continue raising their key rates in response. The ECB has just joined the movement, but the Federal Reserve will wait another few months before following suit. 
Against this backdrop of rising short-term interest rates and infl ationary pressures, sovereign bonds have little to offer. Corporate bonds will continue to benefi t from lower default rates, but there is little room left for tighter spreads. 
Even in a more mature cycle, corporate earnings are doing well and resulting in attractive valuations. Operating leverage continues to exert a positive impact on margins, and salary costs remain moderate.