Our views

The impact of the US election for High Yield


Azhar Hussain, Head of Global High Yield

 9 November 2016

Once again this year politics has sprung a surprise adding uncertainty, which is bad for risk assets. There are now more questions than answers, as we don't actually know what policies will be enacted.  Domestic focused US companies could benefit from the likely cut in taxes with a Republican congress, but without clarity on the path for economic growth these will be tough to invest in.  The losers are likely to be large corporates with operations in emerging markets, as protectionism seems to have won. Obamacare will likely be repealed, hitting parts of the high yield healthcare sector.
The likely nixing of the Iran deal could well mean that the oil price is buoyed, supporting the US’s energy sector, a big issuer of high yield bonds. Political risks will rise globally and the focus will be on remaining short in duration to navigate the future uncertainties.  Fed chair Yellen is unlikely to be in place when her term ends in January 2018, with a Trump appointee replacing her, so the knee jerk reaction of buying the dip in credit becomes more uncertain without a steady hand on the monetary tiller. 

Once again this year politics has sprung a surprise adding uncertainty, which is bad for risk assets. There are now more questions than answers, as we don't actually know what policies will be enacted. Domestic focused US companies could benefit from the likely cut in taxes with a Republican congress, but without clarity on the path for economic growth these will be tough to invest in. The losers are likely to be large corporates with operations in emerging markets, as protectionism seems to have won. Obamacare will likely be repealed, hitting parts of the high yield healthcare sector.

The likely nixing of the Iran deal could well mean that the oil price is buoyed, supporting the US’s energy sector, a big issuer of high yield bonds. Political risks will rise globally and the focus will be on remaining short in duration to navigate any future uncertainties. US Federal Reserve chair Yellen is unlikely to be in place when her term ends in January 2018, with a Trump appointee replacing her, so the knee jerk reaction of buying the dip in credit becomes more uncertain without a steady hand on the monetary tiller. 

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.