Low Rates vs. U.S. Election: What Matters for Fixed Income?

The U.S. election could lead to a dramatic shift in economic policy. But even with a potential change in administration, specific policy impacts could take a while to materialize. Thus, while fixed income markets are pricing in higher volatility around election night, longer term, low rates and direct intervention by central banks will be the bigger influence, perpetuating the search for income, says Global Head of Fixed Income Jim Cielinski.

Key Takeaways

  • President Donald Trump and Democratic nominee Joe Biden have divergent economic policies. But the specific impact of these policies – what actually gets implemented – will not be known until long after election night, a caution against making immediate shifts in a fixed income portfolio.
  • Markets are expecting volatility to be high around the election but subdued in most other periods as a result of the Federal Reserve’s commitment to low interest rates. Thus, following the election, we expect the search for income to continue in bond markets.
  • Against this backdrop, mortgages, asset-backed securities, collateralized loan obligations and corporate credit could remain attractive, almost irrespective of the election outcome.

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