Navigating political uncertainties and investment opportunities 

As 2025 approaches, investors are gauging the US election’s potential market impact. Erin Lyons, Co-President of CreditSights, has offered her insights, emphasizing market dynamics and the ability of the US Congress to get things done whoever gets elected as president.

In an economic briefing titled “Rate cuts are here, now what?”, Lyons stressed the importance of supply and demand factors affecting asset prices.

“There’s a lot to worry about, but I think at the end of the day, technicals will prevail,” said Lyons in the briefing organized by Metrobank for high-net-worth and institutional clients. This suggests that cash flow, particularly into US Investment Grade bonds (high-quality corporate debt with lower risk and lower yields), will significantly influence market performance.

Lyons also noted the importance of the elections.

“We don’t think it matters so much who’s in the White House, but it’s what does Congress look like,” she said. Lyons predicted a Harris victory with a divided Congress as the most likely scenario (40% probability), potentially leading to legislative gridlock.

However, she highlighted the resilience of Investment Grade bonds: “Even if we have a scenario where, it’s a risk-off environment, Investment Grade bonds are still going to benefit because you will have people moving up in quality from high-yield and leveraged loans into Investment Grade. If it’s risk-on, you’re going to benefit from that cash trade.”

She shared some key themes for 2025:

1. Consolidation Phase Ahead: Companies focusing on growth through mergers and acquisitions.
2. Rising Event Risk: Potential increase in debt-funded deals as borrowing costs decrease.
3. Focus on Margins: Declining pricing power, possibly leading to job cuts.
4. Political Matters: Election outcomes influencing Treasury yields and corporate credit spreads.
5. Technical Tailwinds: Excess cash likely moving into higher-risk assets as the Federal Reserve cuts rates.

In summary, Lyons’ analysis portrays a resilient bond market navigating through political uncertainties and economic shifts. While the upcoming US election adds unpredictability, the underlying market dynamics, particularly in Investment Grade and High Yield bonds, appear robust.

Lyons added that given money market fund inflows and an abundance of cash, some funds will likely shift to risk assets such as equities amid the US Fed’s easing cycle.

All this point to a need for a nuanced investment strategy for seizing opportunities while managing risks.

You may view the video of Lyons’ presentation during the economic briefing here.

(If you are a Metrobank client, please reach out to your relationship manager or investment specialist for a deeper discussion about your investment portfolio. Not a client yet? You may sign up here.)

ANTHONY O. ALCANTARA is the editor-in-chief of Wealth Insights. He has over 20 years of experience in corporate communications and has won various communication awards for his work in helping companies and individuals communicate with purpose, clarity, and creativity. He also has a master’s degree in technology management from the University of the Philippines. When not at work, he goes out on epic adventures with his family, practices Aikido, and sings in a church choir.