Table of Contents:
Introduction to elections and bond markets
Political elections not only influence the political landscape, but they also have significant repercussions on financial markets, in particular on fixed income portfolios. With the divergences in candidates’ fiscal and commercial policies, it is essential to analyze how these choices may impact bond returns
and investment strategies.
Harris Tax Policies and Their Impact
If Harris were to win, her fiscal approach, while limited by a possible Republican Senate, could still lead to targeted fiscal measures.
These initiatives could provide moderate support for household spending, favoring consumer-linked credit markets, such as retail and housing. However, if his broader proposals were blocked, the net impact on deficits and bond markets could be contained, keeping Treasury yields
relatively stable.
The consequences of a Trump victory
On the other hand, a Trump victory would lead to more aggressive tax policies, including tax cuts for businesses and families. These changes could initially stimulate economic growth and support corporate credit markets, especially in the energy, telecommunications and banking sectors. However, the proposed tariffs and trade restrictions could increase costs for producers and consumers, generating inflationary pressures that would negatively affect long-term bond yields
.
Investment strategies in an uncertain environment
In an environment of greater fiscal expansion under Trump, deficits could increase, leading to a steeper yield curve and potentially higher interest rates. In this scenario, high-yield bonds (HY) and certain cyclical sectors may become more attractive thanks to higher yields, which could compensate for wider spreads. While this may negatively affect bond prices, higher yields can cushion these losses. In addition, HY bonds tend to have shorter maturities, making them less sensitive to rising interest rates
.
Sectors to monitor
Sectors such as energy and industry could benefit from pro-growth fiscal policies, improving their creditworthiness over time. Under Harris, sectors linked to public spending, such as healthcare and public utilities, could show more stable performance. Conversely, under Trump, cyclical sectors such as industry and energy could benefit from deregulation and tax cuts, although credit risks may increase in sectors exposed to higher tariffs and slower global growth
.
