JPMorgan: Market Indifferent to US Election Outcome, Bond Spreads Near 20-Year Low

J.P. Morgan strategists believe the corporate bond market has yet to price in the potential negative impact of the U.S. election, even though a Republican sweep of the White House and Congress could lead to higher debt yields. The Bloomberg index shows the spread on investment-grade corporate bonds is near the lowest level in two decades, suggesting any election outcome that is seen as negative for credit markets would not be so. Strategists Eric Beinstein and Nathaniel Rosenbaum noted in a report that the market seems to be somewhat indifferent to the election outcome. They also mentioned that the U.S. Treasury market could be volatile depending on the election outcome, according to research by the bank's rate team. For example, a Republican landslide could push the 10-year U.S. Treasury yield up by 40 basis points. This is partly due to policies that typically spur more borrowing, such as an extension of corporate tax cuts and the elimination of the Social Security payroll tax. At the same time, Donald Trump's tariff plans combined with higher interest rate volatility could weigh on the stock market and bring credit risk. However, the rise in yields could also lead to companies cutting back on bond issuance and could stimulate demand from investors chasing yield. Strategists said overall, the impact on the spread would likely be modest. J.P. Morgan estimated a Democratic sweep would lead to smaller interest rate swings, with the 10-year U.S. Treasury yield potentially rising by 20 basis points. According to an analysis by the nonpartisan, nonprofit Committee for a Responsible Federal Budget, the fiscal impact of Kamala Harris's policies would be about half that of Trump's policies.