SINGAPORE (Sept 3): Fixed-income investors looking to tap the European market can consider Italian and Polish government bonds, as they are currently undervalued, says David Zahn, senior vice-president and head of European fixed income at Franklin Templeton in London. On the other hand, the government bonds of France are overpriced.

Zahn says markets have been concerned about Italy leaving the EU since the new government was elected in May. The government was formed by a coalition between the Five Star Movement and the League (formerly known as Northern League), both of which adopted anti-EU rhetoric during their election campaigns.

“The markets have been pricing in the political risk. The new government wants to make policy changes and spend money to spur the country’s economy instead of adopting fiscal prudence. Bond yields have risen and prices have dropped,” says Zahn.

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