In Short: 3 reasons to like corporate bonds

03-23-2017

Assuming President Trump eventually succeeds in pushing through the bulk of his pro-growth agenda, Senior Portfolio Manager Don Ellenberger sees three key potential benefits for corporate bonds:

  • Even if GDP growth falls short of the 3-4% level Trump has promised, the prospect for fiscal stimulus on top of an already improving economy would make the likelihood of a recession anytime soon very low. As you know, recessions are bad for corporate bonds and risk assets generally, while even modest growth tends to be positive.
  • Corporate tax cuts and overseas cash repatriation, key components of Trump’s tax-reform plans, would increase corporate cash flow. That would make it easier for companies to service debt and likely lead to a reduction in new debt issuance, both of which should improve the relative attractiveness of outstanding corporate bonds.
  • Lower tax rates also would reduce the advantages of carrying debt on corporate balance sheets, helping slow and eventually reverse the trend toward higher leverage. Again, this should inhibit new supply, helping boost the relative appeal of existing corporate debt, in addition to improving corporate credit metrics.

For more on the Trump administration’s potential impact on the bond market, watch Ellenberger’s two new videos, “Putting our chips on credit” and “Trump’s policies could be a game-changer for the bond market.”