DUBLIN (Reuters) - Franklin Templeton’s head of European fixed income said on Friday his fund was building up a “store of cash” by buying liquid government bonds that he can redeploy if financial markets become volatile over the next year.
David Zahn told Reuters at an industry event in Dublin that over the last two months he had been reducing his exposure to high yield and investment grade corporate bonds, which he thinks are over-valued, and instead buying government bonds from the likes of Belgium, Poland and the United Kingdom.
“We’ve been going to the governments which don’t yield a huge amount but they’re liquid and you can move in and out of them if an opportunity presents itself,” said Zahn.
“We’re basically reducing risk and building up a store of cash to be able to deploy if and when we get some volatility. We think the risk assets aren’t paying at the moment.”
Zahn added that he thought investors generally were getting complacent about the high valuations in some corners of the corporate bond market, and that he preferred to sit on the sidelines for now.
“We are waiting to see some spread widening, not sure what the trigger will be, but it seems people are getting complacent and just taking the return but not assessing the risk,” he said.
“I think the biggest thing you have to be over the next 6-12 months is be very flexible in your investment strategy because I think they will get some volatility from some event that we can’t foresee.”
Reporting by John Geddie and Padraic Halpin; Editing by Toby Davis