Income investors have a lot riding on the outcome of next week’s presidential election, according to RBC Global Asset Management. The Federal Reserve ‘s monetary policy has largely driven the fixed-income market in recent years, rather than which administration is in place, explained Andrzej Skiba, the firm’s head of BlueBay U.S. Fixed Income. This year there is one factor that could change that: former President Donald Trump ‘s trade policy, he said. If Trump walks away victorious over Vice President Kamala Harris after the Nov. 5 vote, his expects trade policy will have a negative impact on the bond market, he said. Among Trump’s proposals are a 20% blanket tariff on all imports and a 60% rate on Chinese imports. That’s a much broader set of tariffs than when he was last in office. “This time around we are talking about most trade partners and a majority of goods,” Skiba said. Even if it was a 10% tariff, his calculations show that it could add up to an almost 1% bump in headline inflation. The fate of fixed income almost always lies with what will happen with inflation, Skiba said. “One percent doesn’t sound like a lot, but from a Fed perspective, it could make all the difference between being able to cut rates or not,” he said. “It would be very significant in terms of forward policy.” Positioning if Trump wins Investors have been moving further out on the curve to take advantage of anticipated rate cuts. If Trump is the victor, Skiba would move towards short-duration securities. “To protect your total returns on fixed income, shift from longer duration securities back to shorter duration — cash, money markets or short duration assets,” he said. Yet it isn’t just the reversing of rate cut expectations that can hit the market. There have been close to $300 billion in inflows into U.S. intermediate-term core fixed-income funds, he noted. “Even if a portion of that migrates back to cash or money markets, that could be quite disruptive to the trading levels and valuations within the space as this adjustment is taking place,” Skiba said. Still, he isn’t expecting meaningfully negative bond returns, like what happened in 2022. Instead, he anticipates “flat-ish” forward returns on a 12-month basis since the yields can compensate for “a lot of the pain that could be coming ahead.” Demand may also come back to the asset class once investors are positioned for higher-for-longer rates, he said. “When they look at investment-grade bonds and see 6% yields or higher, while they have relative comfort about the resilience of the U.S. economy, that could bring some yield-sensitive investors back to the marketplace,” Skiba said. Positioning if Harris wins A win by Harris would be constructive for fixed-income, Skiba said. Investors should expect more continuity as the Fed continues to cut rates into a slowing economy. In that environment, money continues to move further out the curve in anticipation of those cuts. With money markets close to multi-year highs, there is a lot of money that investors can put to work, he noted. There is $6.51 trillion sitting in money market funds as of the week ended Oct. 23, according to the Investment Company Institute . ‘Window of opportunity’ That said, Skiba wouldn’t make any moves before the election but instead would wait for a clear outcome. If Trump wins, he would move quickly, but investors may have some time to make adjustments between the election outcome and January — when the new president takes office. That is because he expects the positive equity narrative to dominate the markets at first. “There actually might be a window of opportunity for fixed-income investors to reposition their portfolios without too much pain incurred in the process,” Skiba said.