Franklin Templeton Is Betting on Europe’s High-Yield Bank Bonds

(Bloomberg) -- Franklin Templeton is betting on a rally in financial and industrial bonds in Europe, as it seeks out returns amid ever-tightening credit spreads.

The $1.5 trillion asset manager is overweight in both sectors amid confidence that the European Central Bank will keep supporting lenders and that the economy will bounce back from a coronavirus slump, said David Zahn, its head of European fixed income. Double-B and other high-yield bonds are a particular focus.

“We think that is a good place to be in both financials and industrials,” Zahn said by phone, without naming specific companies. In financials, the investor is overweight in both subordinated and senior debt.

Optimism about the eventual post-coronavirus recovery means the asset manager is ready to snap up bonds amid any market stumbles. High-grade euro spreads have started to nudge higher after easing back to pre-coronavirus levels as worsening infections rates force new lockdowns and further economic challenges.

“We will still see some volatility this year,” Zahn said. “It is an opportunity to take advantage of that and buy credit if we see spreads widening again.”

The asset manager is also overweight in periphery euro-area nations, mainly Italy, due to expectations for further spread compression over the next six to 12 months, he said.

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