Societe Generale: Global Fixed Income Selloff Overdone, Especially in Western Europe

Societe Generale strategists argue that the recent global fixed income selloff has gone too far, especially in Western Europe where 2-year and 10-year yields have risen about 30bp in four weeks.

They see a second European Central Bank (ECB) hike in September as priced in, but view a third move to 2.75% by February as a stretch unless Eurozone growth and second-round inflation effects strengthen materially.

The strategists believe that the July meltdown in global fixed income may have gone too far, leading to bearish positions at risk of a short covering squeeze and mean-reversion in yields into month-end.