Following the withdrawal of US President Joe Biden from the 2024 presidential election. on July 21, pundits continue to assess the impact of a presidency led by either Republican nominee Donald Trump or presumptive Democratic nominee Kamala Harris.

In particular, experts in the fixed income world have analyzed how both outcomes will affect the asset class and the interest rate outlook.

According to Althea Spinozzi, Saxo’s head of fixed income strategy, bond markets generally remain stable for both parties and show neither consistent gains nor losses directly linked to the president’s party.

In the event of a Democratic victory, Spinozzi said, “U.S. Treasuries may have a stable yield. Democratic presidencies often pursue policies that support economic stability, which can lead to modest changes in interest rates and balanced performance in bond markets.

On the other hand, a Republican victory could potentially lead to a more diverse performance of US Treasuries, she added.

"While safe-haven demand may increase, leading to stable or slightly lower yields, growth-promoting economic policies may also lead to a higher neutral interest rate, which may put pressure on long-term government bonds bonds.'

Paul Mielczarski, head of global macro strategy at Franklin Templeton-owned Brandywine Global, also joined the conversation.

He explained: “In the event of a deeper slowdown in growth or a large sell-off in risk assets, bonds offer attractive asymmetry and portfolio protection. We believe any selloff in the bond market resulting from the Republican cleanup in November will be short-lived. Trump's 2017 Tax Cut Extension is already expected by investors.

Mielczarski added that the firm prefers US agency mortgage-backed securities, which offer attractive spreads with more protective portfolio characteristics.

Countering Spinozzi's more neutral stance, Michael Medeiros, macro strategist at Wellington Management, expects a more divisive impact on bond markets.

"Elections are extremely important, especially when it comes to fiscal policy. From the perspective of the bond market, even midterm elections are critical. Bond Bear Markets Since 1994, 2018 and 2022 ended within about a week of the midterm elections, and those three elections represented a shift from total one-party control to divided government. Bond markets tend to love divided government and hate full control because of the fiscal implications,” he explained.

The US election could be a 'very two-sided event' for bond markets and the outlook for interest rates in 2025. and 2026, the macro strategist said.

"I would expect a Trump win and a Republican win to lead to higher interest rates — maybe 6 percent within six months — and a Harris win and a Democratic win to lead to lower interest rates."