Everything you need to know to take advantage of the US election with bonds Everything you need to know to take advantage of the US election with bonds Everything you need to know to take advantage of the US election with bonds

Everything you need to know to take advantage of the US election with bonds

Althea Spinozzi

Head of Fixed Income Strategy

Summary:  There is no excuse for being passive during the US election. If Biden wins, green bonds and high-quality corporates will gain. If Trump wins, financials and energy corporates will tighten, but junk will become toxic. In case of a contested election, you can find shelter in Covid-19 resilient sectors.

After yesterday night’s presidential debate it’s clear that it is necessary to think strategically in order to monetize on volatility amid the US election. We have carefully analyzed three scenarios: a Trump win, a Biden win and a contested election. Within this framework, we identify threats and opportunities within the fixed income market.

Biden victory

Yield curve: bull flattener in the short-term; bear steepener in the long-term

In the Biden scenario, we expect a moderate flight to safety in the short-term that will push yields further down from where they are now. We believe that as the market underestimates inflation risk, there is space for interest rates to get as close to zero as the market adjusts for a democratic White House. Volatility will originate because a Biden win will be perceived as an adverse outcome for the credit market due to higher corporate taxes and more stringent regulations. Still, such a scenario will not necessarily be harmful to the corporate world as there will always be plenty of support from the Fed, stimulating the economy.

On top of that, we can expect the overall public spending to rise, implicitly benefitting the corporate world as individuals start to spend money. It is critical to understand that a bull flattener yield curve will be just a momentaneous reaction to the election. A Biden win implies that on the long term we will see higher overall interest rates. An increase in public spending means that there will be further pressure in the economy that will exacerbate inflation. Once inflation is rising, it will be unstoppable for the very reason that the political arena will be reluctant to withdraw aid from American families. Hence, in the long run, we will see the yield curve steepening sharply as inflation rises.

Credit negative - green bond focus

In the short-term, we can expect long-dated high-grade corporates to benefit from post-election volatility. We anticipate long-term maturities FAANG bonds to experience the most significant upside, especially in light of the continuous presence of COVID-19. Among various issuances, we believe that Apple with maturity August 2060 (US037833EA41) and Amazon with maturity June 2050 (US023135BT22) offering a yield of around 2.5% each, can tighten amid a Biden win. Both bonds are paying approximately 100bps over the Treasuries.

For those looking for higher returns, there are many long term-bonds in the investment-grade space that deserve attention. FedEx 2065 (US31428XBD75) offers around 4% in yield or approximately 260bps over the Treasuries. If we keep looking in the lower-rated IG space, we will find General Motors 2043 (US37045VAF76) which offers a yield close to 5%.

It is important to note that we see benefits in bonds with these characteristics only as "election trade" and the holding period should not be longer than the end of the year. Indeed, after the boost produced by a Biden victory we don't see upside holding ultra-long bonds. As a matter of facts, we expect inflation to rise and to provoke a sensible repricing in the bond market, led but longer maturities.

In the long-run, we believe that mid-term high-grade corporates will provide bondholders with safe assets and stable returns. However, inflation risk poses a severe threat to this segment, mainly because the average yield offered by these bonds is close to 1%. Hence, when looking at this space, it is vital to look for higher yields or seek protection against inflation. Among investment-grade mid-term US corporates, we have identified General Motor 2028 (US37045VAS97), Micron Technology 2029 (US595112BN22) and British American Tobacco 2027 (US05526DBB01) to provide yields well above 2%.

When looking at lower-rated investment-grade corporate bonds, it is essential to acknowledge that this segment will prove to be volatile. A lot of these companies are facing the risk of a rating downgrade as their credit outlook deteriorates following a massive debt issuance binge.

The real protagonist of a Biden win, however, will be green bonds. Green bonds are fixed-income instruments designed to finance a specific climate-related or environment project. Clean energy and environment have been areas completely neglected during Trump's presidency, but are at the core of Biden's campaign.

Green bonds will benefit significantly from a democratic White House, mainly because demand will continue to rise, but supply will remain limited. If you want to learn more about green bonds, you can find our analysis here. If you are looking for an inspirational list of green bonds, you can find it here.

Trump Victory

Yield curve: bear steepener.

A Trump victory will be viewed as a credit positive. We can expect the republican president to continue with more of what we have seen in the past few years: tax cuts, deregulation and fiscal budget expansion. This perception will push investors towards riskier assets as they try to get some extra yield over the Treasuries. Although in the short-term, this behaviour will drive the market higher, in the long-term, we will see a rise in leverage levels that will not be sustainable. The immediate effect of a Trump victory on the US yield curve will be a slight increase in interest rates in longer maturities. Higher yields will reflect the market's risk-on appetite and increased inflation expectations. Precisely as we have seen in the Biden scenario, the short part of the yield curve will not move because of the FED controlling the yield curve.

Credit positive - energy and financials focus.

In the credit space, we will see a replay of what we have seen from 2016 until today. Hence, Companies that benefit from lower taxes and deregulation are the ones to provide the most significant upside in this scenario. Unlike the Biden scenario, we prefer the belly of the curve (maturities from five to seven years) to avoid volatility in the longer part of the yield curve. Long maturities will be volatile dictated by Trump's aggressive foreign policy and inflation expectations.  Energy and financials are among our favourite sectors. In this space, it is possible to find bonds offering a considerable pick up over the Treasuries with an investment-grade rating such as BGC Partners, a US-based financial broker, with maturity 2024 (US05541TAM36) offering approximately 320 bps over treasuries for a BBB- rated bond. Also, KKR Capital, a US investment company, offers 400 bps over the treasuries (US302635AD99) for a lower investment grade rating (BBB-/Baa3).

High-yield bonds will also gain from a Trump victory. Sectors that we favour within the HY space are the ones at the core of the Trump campaign: finance, energy, construction, domestic manufacturing and defence. However, we believe it's essential to cherry-pick corporates to avoid overvalued assets and optimize risk-reward as default risk continues to rise.

Contested election

In this scenario, which at the time looks to be the most probable, we will see a sudden and sustained spike in volatility. Credit spreads will widen, and safety is going to be king. The US yield curve will bull-flatten for as much as the election is going to be contested. In the worst-case scenario, we can see Treasuries diving even below zero. In the Corporate space, quality is going to be a top priority, and we will see tightening only in high-quality companies. It is important to note that once a winner will be nominated, we can expect the market to normalize and the yield curve to start steepening in order to embrace inflation.

Coronavirus, an election outsider

Bear in mind that the US election is not the only variable that will affect your portfolio. Coronavirus will continue to be a significant market driver. This is why it is important to flag that some sectors will continue to perform well because of the pandemic. Health care, online economy and digitalization are pocket of the economy that will continue to strive as COVID-19 is a recurrent topic. In this space, Netflix with maturity 2025 (US64110LAL09) offering a yield of approximately 2% looks quite interesting even though it tightened significantly since inception. Some good opportunities can also be found in the food and beverage sector, which is key for the government to run amid the pandemic. In this area, we like Kraft Heinz (US50077LAK26) with 2025 maturity offering a yield of 1.8%. Even in lockdown, people will continue to consume ketchup, right? B&G Foods with maturity 2025 (US05508RAE62) offering approximately 3% in yield and Pilgrim’s Pride 2025 (US72147KAC27) offering around 4%.

Similarly, some sectors will continue to suffer as the pandemic continues to restrict the movement of people.  Avoid airline companies, retailers, leisure activities as they wrap their head around close to zero revenues.

What instruments can I find in the Saxo Platform that will give me exposure to the above?

Suppose you are busy and don’t have time to build and monitor a fixed income portfolio. In that case, you should consider to use ETFs to optimize your market exposure. Here are some ETFs that can help you in your bond strategy:

In US Dollar:

  • IDTL: iShares USD Treasury Bond 20+y UCITS ETF (IE00BSKRJZ44)
  • XUHY: Xtrackers USD High Yield Corporate Bond UCITS ETF (IE00BDR5HM97)
  • FUSD: Fidelity US Quality Income UCITS ETF (IE00BYXVGX24)
  • STYC: PIMCO US Short-Term High Yield Corp Bond Index UCIT (IE00BVZ6SQ11)
  • WINF: iShares Fallen Angels High Yld Corp Bd UCITS ETF (IE00BYM31M36)
  • HYFA: Invesco US High Yield Fallen Angels UCITS ETF (IE00BD0Q9673)

 In EUR:

  • US10: Lyxor Core US Treasury 10+Y (DR) UCITS ETF (LU1407890620)
  • IS04 or DTLE: iShares USD Treasury Bond 20+yr UCITS ETF (IE00BSKRJZ44 or IE00BD8PGZ49)
  • LQDA: iShares USD Corporate Bond UCITS ETF (IE0032895942)
  • IS0R: iShares USD High Yield Corporate Bond UCITS (IE00B4PY7Y77)
  • XUHY: Xtrackers USD High Yield Corporate Bond UCITS ETF (IE00BDR5HM97)


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.