Market Overview
Credit markets rallied in March and in the first quarter, outperforming US Treasuries, as the global economic recovery gained momentum. Concerns about the sustainability of the recovery and rising public debt levels lingered, however.

Macroeconomic data helped boost investor sentiment in the month and quarter. In the US, exports grew at an annualized rate of 28% in the second half of 2009—the quickest pace in more than three decades. Leading indicators—a gauge of future economic prospects—show a significant improvement in global economic conditions. However, jobless rates are still high, and private credit growth remains subdued.

Within emerging markets, gains in non-Japan Asia, Eastern Europe and the Middle East continue to outpace expectations, thanks to rapid growth in domestic demand. Import growth in emerging-market economies is booming, acting as an important catalyst in the recovery of industrialized economies.

The yield spread on the JP Morgan EMBI–Global narrowed 50 basis points (b.p.) to 261 b.p. in March. All emerging-market countries generated positive total returns during the month, but non-investment grade-rated countries generally outperformed investment grade-rated countries. The JP Morgan Government Bond Index–Emerging Market (GBI-EM) rose 3.73% in unhedged US dollar terms. Nearly all countries posted positive returns, with South Africa, Malaysia and Mexico performing best. Egypt, Peru and Turkey lagged the most. The prices of local-currency bonds advanced in all countries.

Amid rising Treasury yields, the passage of US health care legislation, and lingering sovereign credit risk, the high-yield market advanced 3.0% in March, extending its run of positive returns for the 13th-consecutive month. Strong risk appetite coupled with improving growth and low inflation has been positive for the sector. Year-to-date, high yield is up almost 5%.

On a year-to-date basis, high yield issued US$76.8 billion in new securities, surpassing the previous quarterly record set in 2007 by more than US$15 billion. With many bonds becoming callable over the next 12 months, increasing M&A activity, and strong demand, we would expect the new-issue market to remain active for the foreseeable future.

Market Outlook
We continue to believe that a sustainable economic recovery is possible. One element supporting this view is the rebalancing of previous imbalances we are beginning to see. The normalization of inflation rates, the stabilization of financial markets and a sustained recovery in growth requires that many central banks increase interest rates during 2010, in our view. We don’t believe these actions will have significant impact on financial market liquidity, however, and with yield curves across the globe steep, it appears that investors have anticipated these changes. A damaging spike in inflation is unlikely until we see faster growth in private sector credit, a reduction in spare capacity and an increase in wages.

Looking forward, country selection remains a key component in our strategy. As the year progresses, investors must be aware of increased political and financial uncertainty, as we expect to see an ebb and flow of macroeconomic issues around the world. However, we believe a global rebalancing is taking place and do not see evidence of a “double-dip” recession at this time. While some of this is hinged on activity in China, we still believe China’s actions are the proper response to rapid loan growth and an attempt to remove the extraordinary monetary stimulus employed during the peak of the fiscal crisis. These actions have not resulted in a change in our forecast for Chinese or global growth.

Global High Yield Portfolio

•	Seeks to generate high current income and overall total return by investing in a portfolio of high yield debt securities of issuers located throughout the world, including US and emerging countries
•	20% maximum in any country except the US
•	No limit on maximum exposure to CCC rated bonds

AllianceBernstein’s Approach to High-Income Investing
Feature

•	Global investment universe
•	Multisector
•	No limit on maximum exposure to CCC rated bonds
•	Adapt to evolving market

Benefit

•	Increase opportunity set
•	Diversify risk
•	Don’t tie income to credit quality
•	Flexibility to allocate to new income sources