While fixed income is typically the asset class most vulnerable to the outcomes of political elections, a range of wealth managers expect the US and UK elections will have little impact on bond prices.
Typically if an election result is uncertain or if a party is victorious which has committed to a major increase in the fiscal deficit, the government bonds of that country may be sell off in anticipation of new issuance to pay for the extra fiscal spending.
The newly-issued bonds would be priced to reflect the higher level of risk, and so drag down the price of the existing bonds.
Richard Carter, head of fixed income research at Quilter Cheviot, says that while the European parliamentary elections may lead to volatility in those bond markets, his expectation is that in the UK the election will not induce substantial volatility in gilt markets.
He said: "This is attributed to the similarity in fiscal plans between Labour and the Conservatives, a consensus solidified by the recent mini-budget and gilt crisis under Liz Truss, which highlighted the criticality of prudent fiscal strategies for maintaining market confidence."
His view is shared by Peter Dalgleish, chief investment officer at Parmenion, who said: “The differences in policies between the two main parties on both sides of the Atlantic appear relatively narrow. Fiscal largesse remains more likely than austerity raising questions around debt sustainability and therefore rising term premia.
"But investors’ appetite for bonds is being driven by the relatively high nominal yields available as well as protection through duration if there turns out to be a negative growth surprise. To this extent in the short-term elections are not expected to meaningfully alter bond allocations, though over the longer term changes in government policy this may alter this.”
Term premia is a bond market term for the extra yield demanded by an investor to own bonds with a longer date to maturity.
Tom Hibbert, investment analyst at Canaccord Genuity says the potential for politics to generate additional volatility in the gilt market was evidenced after the 2015 and 2017 general elections as well as in the period after the “mini-budget”.
He says Labour are more often associated with looser fiscal policy so a Labour win - which polls currently suggest is the most likely outcome - may create some volatility in the gilt market, while in the US he says both major presidential candidates are determined to continue to spend, and the market and bond investors are already aware of this.
In contrast Hoshang Daroga, investment director at Elston Consulting believes a Labour victory would increase political stability following years of Conservative party leadership changes, and this could be beneficial to the outlook for gilts.
