Franklin Templeton bets on German and Spanish bonds amid political flux

Zahn maintains an overweight stance on German and Spanish bonds, viewing them as the most stable assets in the region. He characterizes Germany as the premier triple-A destination, noting its robust growth profile of 3 to 3.5 percent. This strategy aligns with Mauro Valle of Generali Asset Management, who also sees value in German yields exceeding 3.5 percent.

Conversely, Zahn remains underweight in France and Italy, citing structural political uncertainty that he expects to persist through next year’s elections. He specifically points to the French spread, which he believes will remain above 100 until at least April or May. Regarding the UK, Zahn is watching the October 28 Autumn Budget closely. He warns that any government move to shrink fiscal headroom would likely be poorly received by bondholders already wary of the UK's tax-and-spend trajectory. Despite these concerns, Zahn identifies a broader shift in investor sentiment, as current yields—roughly 4 percent in Europe and 5 percent in the UK—make bonds an increasingly attractive alternative to equities for long-term holders.