UBS: A Harris victory would be good for utility bonds, while Trump would boost energy.

Matthew Mish, head of credit strategy at UBS, said that if Kamala Harris were to win the U.S. presidential election, it would boost industrial, capital goods, and utility company bonds. If Donald Trump were to win, bonds for energy, aerospace defense, and automotive borrowers would benefit. Mish discussed areas that would benefit from a Democratic victory in the latest Credit Edge podcast from Bloomberg Intelligence, stating, "We believe this is largely due to the likelihood of retaining inflation-reducing legislation and supporting many stimulus policies from the Biden era." On the contrary, Mish believes that a Democratic victory could weigh on bonds in the telecom, tech, banking, and automotive industries. He added that reduced trading volume and increased regulatory scrutiny would put pressure on the first three, while the shift to electric vehicles and a weaker push for American manufacturers to resist imports could be negative factors for car manufacturers. Regarding Trump, Mish said that Republicans seem to support internal combustion engine vehicles and more profitable products like trucks, so if Trump were to win on November 5th, it would be advantageous for energy, aerospace defense, and automotive borrowers. Mish stated, "The Trump administration seems to support energy independence, and the rollback of some regulations is positive for the energy industry, especially the pipeline industry." Currently, the polls show Harris leading slightly, but the competition is close. If the Republicans were to win by a large margin, UBS believes that bonds rated CCC (lowest junk level) would perform the best, mainly due to their cautious positioning, and small-cap stocks may see greater gains. However, Mish noted that the recent increase in CCCs was more driven by telecom acquisition activity than by bets on the election or rate cuts. He said, "Currently, most of the changes in CCC ratings may be more related to specific risks, or industry-specific risks." Mish said that after the debate between Trump and Harris on September 10th, credit performance in the energy and automotive industries was poor, while the utility sector performed well as support shifted to the Democratic Party. Mish stated, "We believe that there is a consensus in the market on winners and losers, which is quite consistent with the credit trading." In terms of broader corporate debt, UBS is concerned about private credit as struggling borrowers are forced to repay loans with more debt or amend and extend existing financing agreements. Mish expects the portfolio to deteriorate over the next 12 months, with an increase in private debt defaults. Mish said, "There are certainly some more concerning indicators. The interest coverage ratio of many companies is quite low, which is undoubtedly a potential concern." However, Mish expects that unless the U.S. economy slows more than anticipated or enters a recession, issues in private credit will not spread to other parts of the corporate debt market or evolve into systemic problems.