Two high yield bankers told GlobalCapital they put on hold every deal they had on the table once the results of the Republican victory in the US elections came in during the early hours of Wednesday.
But this immediate reaction should bear little weight of evidence for how the situation will unfold in the near future, said most of the market participants GlobalCapital spoke to in the wake of the result.
“I’ve been up all night, and I know I wasn't the only banker who was,” said a head of high yield syndicate at a Eurozone bank. “Now we’ll all digest the fact that Trump has been elected, it won’t take longer than when we were faced with the Brexit decision.”
“[Trump’s victory] finds a market in a very good shape,” said a fund manager. “I expect a rush to safer areas such as double-B rated names or to the well-known issuers. It’s a big event again for high yield, of course, but the market has performed very strongly.”
Euro high yield total returns year to date at 8.19% are some 300bp above returns in the euro investment grade market, according to JP Morgan data released on Monday.
A head of leveraged finance at a non-Eurozone bank said it would be “wrong to draw instant conclusions about the negative effects of a Trump presidency”.
In a note to clients on Tuesday, Royal London’s head of global high yield Azhar Hussain began to pick his winners and losers.
“Domestic focused US companies could benefit from the likely cut in taxes with a Republican Congress, but without clarity on the path for economic growth these will be tough to invest in. The losers are likely to be large corporates with operations in emerging markets, as protectionism seems to have won," he wrote.
"Once again this year, politics has sprung a surprise adding uncertainty, which is bad for risk assets," he also remarked. "There are now more questions than answers, as we don't actually know what policies will be enacted."
A banker and an investor, both based in London, agreed that there are few details about what plans a new Republican government might have in store.
"There's a certain skepticism in the market right now," the investor said, "It seems hard to believe that Trump's most radical promises could have any grounds of becoming real. We are hoping for the better."
"This is now a situation of looking into what's in the market case by case, sector by sector," the banker explained. "We'll see some very credit specific moves. And in two weeks, who knows how the market will feel?"