JPMorgan strategists suggest that potential Republican victories in the White House and Congress could lead to rising debt yields, yet the corporate bond market has not priced in the potential negative effects of the U.S. election. Bloomberg's index shows that investment-grade corporate bond spreads are near a two-decade low, indicating that markets do not currently foresee any election outcome adversely impacting credit markets.
Strategists Eric Beinstein and Nathaniel Rosenbaum noted that the market seems indifferent to the election outcome. According to JPMorgan's interest rate team, the U.S. Treasury market could experience volatility based on election results. For instance, a sweeping Republican win might increase the 10-year U.S. Treasury yield by 0.4 percentage points, mainly due to policies such as extended corporate tax cuts and the removal of Social Security tax benefits, which generally encourage increased borrowing.
Additionally, Donald Trump's tax increase plans, combined with higher interest rate volatility, could negatively impact the stock market and introduce credit risks. However, rising yields might lead companies to issue fewer bonds and could boost demand from yield-seeking investors. Overall, strategists believe that the impact on spreads might be minimal.
JPMorgan estimates a Democratic victory would result in smaller rate fluctuations, with the 10-year U.S. Treasury yield potentially rising by 0.2 percentage points. The fiscal impact of Kamala Harris's policies is estimated at around half that of Trump's policies, according to the nonpartisan Committee for a Responsible Federal Budget.
