This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Here's Why Bonds Matter on Election Day

NEW YORK ( TheStreet) -- Shortly after Americans select a president for the next four years, Congress will reconvene to solve the so-called fiscal cliff, and bond investors would be wise to keep an eye on discussions.

Treasury bond yields hit historic lows over the summer as speculation about whether Federal Reserve would embark on another round of quantitative easing kept investors on edge. The Fed eventually announced the extension of its Operation Twist maturity extension program through the end of the year as well as an open-ended, mortgage-backed securities purchasing program in mid-September.

While the yield on the 10-year Treasury has bounced back over the past few months, it still remains solidly below 2%, and that's pushed many investors into lower credit quality corporate bonds, according to Jeffrey Sica, chief investment officer of SICA Wealth Management.

"First of all, people have become extremely hungry for yields, so they've moved to lower credit quality bonds in order to get yields," said Sica. "So they've put themselves in the position of taking on more risks just to achieve yield."

Many bond analysts have said it's difficult to draw any conclusions about what will happen to bonds after the election, as any prediction has to be multi-pronged: Forecasting not only who will win the presidential election but also how the make-up of Congress shapes up and what deals will get done in order to address the fiscal cliff.

Here are a few scenarios that could play out:

In the event of a Barack Obama victory, investors should be able to trust that the Fed will be little changed. Fed Chairman Ben Bernanke's second term runs through Jan. 31, 2014. Unlike Mitt Romney, Obama has not expressed any intention to remove Bernanke before that date.

Pertaining to central bank policy, Bernanke and the Fed have committed to continue open-ended quantitative easing until the economy and the labor market not only improve significantly and also show an ability to maintain that momentum for an extended period of time. The bank has not been more specific about how long.

This means the Fed's efforts will continue to keep a lid on Treasury yields for the foreseeable future and likely push more investors toward other investments, such as stocks and corporate bonds.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $124.24 0.00%
FB $83.01 0.00%
GOOG $555.17 0.00%
TSLA $190.41 0.00%
YHOO $44.47 0.00%


DOW 17,678.23 -40.31 -0.23%
S&P 500 2,056.15 -4.90 -0.24%
NASDAQ 4,863.3620 -13.1570 -0.27%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs