Franklin Templeton's Zahn cautious on corporate debt, stays away from tech bond sales

By Yoruk Bahceli

LONDON, Feb 25 (Reuters) - Franklin Templeton's head of European fixed income told Reuters on Wednesday he remains cautious on corporate bonds because the risk premium they pay is too low, expecting rising AI spending by big tech firms to pressure the market as they ramp up borrowing.

Key points from the interview:

• David Zahn said that he has not participated in many of the recent AI-related bond sales, such as Alphabet's GOOGL.O jumbo issuance earlier in February that included a 100-year bond.

• "We haven't been participating in most of them, because we just don't think that it's clear what that company is going to look like in 100 years," Zahn said.

• Zahn has been reducing exposure to European corporate bonds over the last 18 months, having previously been significantly overweight the sector. He is now positioned more neutrally.

• He said credit spreads had not widened so far despite the increase in borrowing due to strong inflows into corporate bond funds.

• The issuance is "going to put a little bit of stress on the credit market, because there's a lot of extra credit to have to absorb that we weren't anticipating," he said.