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Summary of article:
On the eve of the US midterm elections, bond traders mostly adopt a wait-and-see strategy, waiting for the release of important information such as the election, refinancing plan and CPI. The market generally believes that a divided Congress is better for the bond market, but the real impact may come from election disputes.
The most influential U.S. It is believedmidterm elections On the eve of voting, large fixed income fund managers have adopted a wait-and-see policy and pressed the “pause button”, unwilling to take risks before the election results are announced. However, it is expected that the outcome of the two parties splitting the Senate and House of Representatives would be most beneficial to the bond market.
As US Treasury yields have risen to attractive levels, money has poured into the bond market in recent weeks in an effort to lock in higher returns. But Peters, co-chief investment officer of PGIM Credit, said “this was the most consequential midterm election cycle we’ve seen in a very, very long time” and is now in a “moment of pause.”
Kandujja, head of broad market fixed income at Morgan Stanley Investment Management, also said his team is also “hitting the pause button” as it awaits midterm election results and upcoming economic data.
The US Treasury Department will announce its quarterly “refinancing plan” on the 4th, just one day after voting day, and the latest US Consumer Price Index (CPI) data is scheduled to be released on the 10th.
Kanduja, who has always been a strong player, said, “We have taken strategic steps to suspend the action and wait for the results to be released. We try to avoid directly speculating on how interest rates and yield curves will be affected based on a single scenario of victory or defeat in the election results.”
He told that a divided Congress is the basic expectation of his team. This scenario is generally beneficial for the bond market, primarily because the likelihood of subsequent fiscal tightening is higher.
Although it is generally expecteddemocratic party The chances of victory in the House of Representatives and the Senate are not small, but Trump has vast executive power and veto power, which can limit the power of Congress. Therefore, Khanduja believes that the significance of an overall victory for the Democratic Party “cannot be generalized”, and that “an overall victory for the Republican Party… may be the most unfavorable situation.”
He believes the market hasn’t reflected this at all, “so you might see more of a market reaction to this.”
Hooper, chief market strategist at Man Group, believes the controversy over the election results will be “the biggest reaction from the market.”
However, some believe that investors are actually more concerned about other important issues. Gamba, co-chairman and chief commercial officer of Franklin Templeton, said that at a recent conference of asset managers in Asia, “not a single person mentioned the midterm elections.”
He said that recently, people are mainly concerned about artificial intelligence (AI), the development path of the Federal Reserve (Fed), geopolitics and other issues. “Based on experience, no one expects the midterm elections to bring any major changes to the market,” he said, citing a recent study by the Franklin Templeton Institute.
He said that clients are still concerned about how to build investment portfolios, but this is related to AI, data centers, and index concentration comparison, and the focus of the discussion is “diversification.”
Summary FAQ
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Because this midterm election is considered to have far-reaching consequences and the results can change the trend of interest rates and yield curves. Fund managers do not want to take the risk of betting before the results are out, so they are hitting the wait and see button for now.
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Most people expect a divided Congress, with different parties controlling the House and Senate. This scenario generally means a greater likelihood of fiscal tightening, which is relatively good for the bond market.
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Investors are more concerned about AI, Federal Reserve policy direction, geopolitics and whether there needs to be an emphasis on diversification in asset allocation. Some interviewees also mentioned that refinancing schemes and CPI will influence the market decision.
