Election Update: Prioritize Flexibility
When uncertainty is high, it’s important for bond investors to prioritize flexibility. Making small decisions across multiple sectors while maintaining investment flexibility is preferable to one big macro view.
Key takeaways
- Elections matter for bond investors because the ruling party’s economic philosophy directly affects growth, inflation, and monetary policy.
- Although the political landscape is in flux, the favorable economic backdrop in many major economies should help bond investors.
- The second half of 2024 could be volatile, however, and we believe careful security selection will be critical.
Elections matter for bond investors because the economic philosophy of a ruling party directly affects growth, inflation, and monetary policy. Over the past three weeks, the U.S. presidential campaign experienced an assassination attempt on one candidate and the sitting president dropped out of the race. Earlier in the month, the Labour Party won a landslide victory in the U.K. and a snap election in France left that country politically divided. In the U.S., the presidential election race is far from over, and it’s too early to call. What is a bond investor to do?
Prioritize flexibility
During periods of heightened uncertainty, it’s important for bond investors to prioritize flexibility. When the winds of change are blowing, implementing small decisions across multiple sectors and maintaining investment flexibility are preferable to one big macro view. This is a cornerstone of Allspring’s investment process. Fortunately, in today’s market, bonds are doing exactly what they’re designed to do—namely, generating consistent, predictable cash flows. In markets like the U.S., those cash flow yields are well above medium-term inflation expectations. These positive real yields can help investors manage changing growth and inflation dynamics as political change unfolds.
Economic foundation
With the political landscape influx, the economic backdrop continues to demonstrate decelerating growth and modest disinflation in many major economies. In response, some central banks have started cutting rates, and the Federal Reserve (Fed) is biased toward following that path. This favorable macro backdrop should help bond investors—however, softer data is likely necessary to solidify the Fed’s willingness to cut rates.
Waiting game
Investors hoping for political clarity are going to have to wait. The U.S. presidential election is still over three months away and far from over, and the impacts of other elections around the world are just starting to be felt.
For bond investors, the story of 2024 continues as all-in yields are high in both nominal and real terms, yet credit spreads remain tight. We’ve kept our duration exposure close to neutral relative to benchmarks in many of our strategies, while some accounts have started to position for steeper yield curves. We continue to favor higher-yielding strategies at the front end of yield curves. Corporate credit fundamentals remain intact, and the demand for incremental yields remains robust. However, cyclically tight credit spreads suggest a rotation from corporate credit to securitized products could be warranted. Perhaps of most importance, careful security selection is critical for navigating what’s likely to be a volatile second half of 2024.
Related insights
Today, as expected, the FOMC announced a cut of 25 basis points in the federal funds rate, lowering it to 4.25%–4.50%. From here, the interest rate path is less clear.
In our 2025 Outlook, we discuss three macro themes we expect in 2025 and nine of our portfolio managers reveal top opportunities they anticipate and their positioning to potentially benefit.
Allspring's investment experts discuss what they believe is ahead for the markets in 2025 and beyond.
Article
Election ReflectionsWith postelection macro trends and the Republican agenda now in the forefront, Allspring’s fixed income teams highlight opportunities and risks for investors to consider in positioning portfolios.
Article
Fed Cuts: One Slice at a TimeAs expected, the FOMC today announced a cut of 25 basis points in the federal funds rate, lowering the rate to 4.50%–4.75%. U.S. election results suggest we could see looser fiscal policy and new trade tariffs ahead, which might lift growth as well as inflation.
Article
Election 2024: Market ImpactsAfter this week’s momentous U.S. election results, Allspring’s investment experts share their perspectives on what to expect for fixed income and equity markets going forward.
Macro Matters provides a concise, comprehensive look at macroeconomic themes that matter to clients.
Two Allspring equity portfolio managers, Bryant VanCronkhite and Michael Smith, share their perspectives on the U.S. DOJ’s court filing stating it may recommend dismantling Google’s core businesses.
Listen in to George Bory, chief fixed income strategist for Allspring Global Investments, and his immediate reaction on the Wednesday, September 18, announcement from the FOMC (Federal Open Market Committee) meeting.
The Fed decided to finally lower its key interest rate, announcing a cut of 50 basis points, to 4.75–5.00%. A cut of at least 25 basis points was widely expected and welcomed.
Macro Matters provides a concise, comprehensive look at macroeconomic themes that matter to clients.
Macro Matters provides a concise, comprehensive look at macroeconomic themes that matter to clients.
Fed officials again kept the federal funds rate at 5.25–5.50%. We believe they’ll cut for the first time this cycle in September and then analyze incoming data to inform future rate-cut decisions.
Summer Edition
Macro Matters provides a concise, comprehensive look at macroeconomic themes that matter to clients.
As we reach the middle of 2024, where do our experts think you should focus portfolios given shifting rate expectations, sticky inflation, and global uncertainties? Follow the insight to find out more.
Allspring's investment experts discuss what they believe is ahead for the rest of 2024 and beyond.
Fed officials again kept the federal funds rate unchanged at 5.25–5.50%. Our base case is that they won’t cut rates until they see weakening in prices and the labor market, probably not before fall.