Election Insights: Super Tuesday Split

Following the split outcome of the Super Tuesday Democratic primaries, financial markets will likely focus on the more pressing risks related to the COVID-19 coronavirus. John Kerschner, Head of U.S. Securitized Products, explains why, as Treasury yields fall, investors may want to consider rotating into areas where they can find more attractive risk-adjusted yields.

Key Takeaways

  • Former Vice President Joe Biden’s success in the Super Tuesday Democratic primaries clouded the election outlook. With no clear front-runner in what is now a two-person race, the candidate may not be known until the Democratic convention.
  • Thus, in the near term, financial markets are more likely to focus on the COVID-19 coronavirus and the Federal Reserve’s inter-meeting rate cut in response to the outbreak.
  • Bond markets are pricing in a worst-case scenario for COVID-19 – more so than equity markets. As Treasury yields fall, we think investors may need to look for income in high-grade corporate bonds and mortgage-backed securities.

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