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by  BlueBay Fixed Income teamA.Skiba, CFA Oct 29, 2024

Andrzej Skiba, Head of BlueBay U.S. Fixed Income, discusses potential outcomes of the US Presidential election and what the results may mean for investors.

Watch time: 3 minutes, 27 seconds

View transcript

Rend speaker: Andrzej Skiba

Welcome to the latest edition of The Weekly Fix. My name is Andrzej Skiba.

The election is only a week away. While the Trump campaign seems to have more momentum of late, key battleground state polling still indicates a neck & neck race between the two candidates.

We have shared before that a Harris win scenario should be favorable for fixed income assets as policy continuity, coupled with Fed easing into a US economic slowdown, should entice investors to move further out the curve, supporting a robust total-return outlook over the coming year. We believe the exact opposite to occur should Trump reclaim the US presidency. Our view is predicated on the expectation that Trump would follow through on his promise to implement a wide set of tariff increases in the new administration. This could be highly inflationary and would likely prevent the Fed from being able to cut rates in a meaningful way in 2025. We’d expect hundreds of billions in assets that have already moved further out the curve in anticipation of rate cuts to move back to cash and short duration assets, something that could be disruptive for a while to our asset class.

With all this in mind, what should fixed investors do? In our opinion, waiting for the actual outcome is the best strategy. Even though a Trump win seems more likely at this stage, polling remains within a margin of error. We also reflect on the fact that equity investors are likely to focus on the perceived benefits of lower taxes, less regulation, and more M&A activity were Trump to win. This way, you could see a broad rally immediately following the election, even if the outlook eventually darkens for fixed income. This could offer fixed income investors an opportunity to reposition, well ahead of the tariff headlines coming through in January, when the next administration gets to work. 

We also note that, unlike in 2022, the downside scenario for fixed income is contained to flattish returns were Trump to win. The yield of the asset class is much more elevated this time around, helping to absorb the negative impact of higher Treasury yields and wider spreads. Therefore, we do not see a case for an exit from fixed income, just for repositioning towards shorter duration assets until the dust settles and yield-hungry buyers return.

Thank you for your attention.

Summary points

  • The market is on edge leading into the election, as the result is very important for fixed income investors.

  • Harris brings continuity, while Trump increases the probability of higher inflation due to tariffs.

  • Equity investors are likely to focus on the perceived benefits of lower taxes, and less regulation were Trump to win.

  • In our opinion, investors waiting for the actual outcome is the best strategy.

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