Junk bonds are in high demand as Wall Street bets on another Trump presidency

Corporate bond investors around the world have begun to position themselves to benefit from a possible election victory for Donald Trump after the assassination attempt and the Republican National Convention strengthened his position in the elections. Spreads on US high-yield bonds tightened compared to their euro counterparts last week and passive funds around the world saw an increase in cash flows.

“The high US sentiment is business,” said Al Cattermole, portfolio manager at Mirabaud Asset Management. “It’s very domestically focused and exposed to US economic activity.”

In a recent June interview with Bloomberg Businessweek, Trump said he wants to lower the corporate tax rate to 15%. Those lower costs can improve the creditworthiness of smaller firms. US companies could also benefit from protectionist policies that would see higher tariffs reduced on imports if the Republican candidate wins.

The U.S. interests are interesting to financial managers because, excluding mortgages, more than half of borrowers have household incomes, according to a Bloomberg News analysis. That compares to just a fifth in the elite area. The data does not include companies that do not report publicly.

Domestic producers can also benefit from lower tariffs and regulation.

“We’re adding to the number of US industries that could benefit from the trade stimulus from the new administration,” said Catherine Braganza, senior product manager at Insight Investment. “Companies that benefit from industrial production, in particular, that deal with other sectors” are attractive, he said.

The fruit bug

Some fund managers are focused on the structure of commodity prices, especially as the trading spread appears to have little room to decline after approaching its most difficult level in years. more than two.

“We have reduced time by owning short-term bonds, using futures and using leveraged trading,” said Gabriele Foa, portfolio manager at global credit group Algebris Investments , talking about bets that benefit from the gap between the short and long term. old products are common.

Although this spread has widened this year, it is still well below the levels seen before the central banks started raising interest rates to deal with falling inflation. Currently, bondholders earn about 30 basis points of additional yield by holding seven- to 10-year corporate bonds as opposed to short-term corporate notes, according to Bloomberg indexes, compared to 110 before Trump left in 2021.

home gives the curve more room to sink, especially if the policies of the former President – which are expected to decrease and lead to higher national debts – are accompanied by reducing the interest rate by the Federal Reserve.

To be fair, not all fund managers are turning to Trump’s portfolio just yet. It is not a certainty that he will win, and even if he does, it is not clear what he will do in office.

Joost de Graaf, co-head of the credit group at Van Lanschot Kempen Investment Management, said: “It’s too early to prepare your career based on ‘what if Donald Trump is in office.'” We’re still expecting to see a lot of growth in the summer.”

If Trump wins, markets sensitive to higher interest rates, inflation and interest rates are expected to be volatile.

“Prolonged inflation is dangerous for emerging markets, and you’ll get less economic growth because of tariffs,” Mirabaud’s Cattermole said. “We can expect most European yields to underperform over the next nine months.”

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