(Bloomberg) -- Corporate bond markets don’t seem to be pricing in negative outcomes from the upcoming US election, even if a Republican sweep of the White House and both houses of Congress results in higher debt yields, according to JPMorgan Chase & Co. strategists.
Investment-grade corporate bond spreads are near their tightest levels in two decades, Bloomberg index data shows. That wouldn’t be the case if any election outcomes were viewed as particularly negative for credit markets, according to JPMorgan strategists including Eric Beinstein and Nathaniel Rosenbaum.
“Our take away from this is that markets are somewhat indifferent to the outcome,” the strategists wrote in a Tuesday note.
Treasury markets could see swings depending on how the election shapes up, the strategists said, citing work by their rates colleagues. For example, a Republican sweep could push 10-year Treasury yields 0.4 percentage point higher, according to JPMorgan.
That’s in part because policies like extending tax cuts for corporations and ending taxation of social security benefits would typically spur the US to borrow more.
Meanwhile, Donald Trump’s plans for higher tariffs combined with higher rates volatility could hit stocks, with risks spilling over to credit, the strategists wrote.
But higher yields also spur companies to issue fewer bonds, and can boost demand from yield-driven investors. Overall, the impact on spreads could be light, the strategists said.
A Democratic sweep would likely result in a less dramatic move in rates, with 10-year Treasury yields potentially climbing 0.2 percentage point, JPMorgan estimates. The fiscal impact of Kamala Harris’s policies is about half of the impact of Trump’s, according to an analysis from the Committee for a Responsible Federal Budget, a nonpartisan and non-profit group.
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