In a note to clients from SocGen's Brigitte Richard-Hidden, the strategist writes that "The bear market in rates has started, and with it credit, and eventually emerging markets, should both come under pressure," echoing what Goldman said on Friday: "There has been a regime shift in the market, which implies further increases in yields."
And with SocGen telling clients they can no longer bet on "dormant" inflation to allow the pursuit of yield in virtually all rates products, the bank is advising clients to take "defensive" positions in short-dated debt, inflation-linked notes and Japanese government securities. Such a risk-averse move, will be worth it in the long run, SocGen claims, even if it means sacrificing income now.
"The key for fixed income portfolio investors from here to the summer should be avoiding capital losses. A loss of running yield is an acceptable price to pay."