January 21, 2020 / 11:18 AM / a month ago

Franklin Templeton's Zahn short British gilts as fiscal expansion looms

LONDON, Jan 21 (Reuters) - Franklin Templeton’s head of European fixed income David Zahn said on Tuesday he has moved to a ‘short’ position in UK government bonds, given expectations the government will ramp up spending at the next budget.

British finance minister Sajid Javid, who will deliver the first post-Brexit budget plan on March 11, has promised to use public investment to help the voters who gave Prime Minister Boris Johnson a thumping election win last month.

“We’ve gone short gilts versus Europe,” said Zahn, who last year had bought gilts as a hedge against Brexit uncertainty.

“When the UK brings out its budget, we think it will be expansionary, especially vis-a-vis Europe.”

Yields on British government bonds, known as gilts, have fallen sharply this month on speculation that the Bank of England is gearing up to cut interest rates, possibly even at its Jan 30 meeting.

But data on Tuesday showed the British economy created jobs at its strongest rate in nearly a year in the three months to November, pushing up sterling and gilt yields .

“I think it will be a close call but they won’t cut,” said Zahn, referring to the Jan BoE rate decision. (Reporting by Dhara Ranasinghe; editing by Sujata Rao)

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