UBS Credit Strategy Head Matthew Mish stated that if Kamala Harris wins the U.S. presidential election, it will boost the bonds of basic industries, capital goods companies, and utility companies.

If Donald Trump wins, bonds for energy, aerospace defense, and automotive borrowers will be favorable.

Mish discussed in the latest Credit Edge podcast by Bloomberg Intelligence that the areas that Democrats will benefit from, saying, "We believe this is largely related to retaining the inflation reduction bill and supporting many stimulus policies of the Biden era."

On the contrary, Mish believes that the election of the Democrats may drag down bonds in the telecommunications, technology, banking, and automotive industries.

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He added that a reduction in deal-making and increased regulatory scrutiny will put pressure on the first three, while the transition to electric vehicles and a weakening of U.S. manufacturers' ability to resist imports may be a negative factor for automakers.

Speaking of Trump, Mish said that Republicans seem to support internal combustion engine vehicles and more profitable products such as trucks, so if Trump wins the election on November 5, it will be beneficial for the debt of energy, aerospace defense, and automotive borrowers.

Mish said, "The Trump administration seems to definitely support energy independence, and the repeal of some regulations is positive for the energy industry, especially the pipeline industry."

Currently, the average of polls shows that Harris is slightly ahead, but the two sides are evenly matched.

If the Republicans win big, UBS believes that bonds rated CCC (the lowest level of junk) will perform best, mainly due to their cautious position and the possibility of greater gains in small-cap stocks.

However, Mish said that the rise of CCCs this month is more driven by telecom acquisition activities, rather than bets on the election or interest rate cuts, "At present, most of the movements in CCC ratings may be more related to special risks, or what can be called specific industry risks."

Mish said that after the debate between Trump and Harris on September 10, the credit performance of the energy and automotive industries was poor, while the utility sector performed better due to the shift in support to the Democrats.

Mish said, "We believe there is also a divergence in the market for winners and losers, and the polls are quite consistent with the way credit trades."

In terms of broader corporate bonds, UBS is concerned about private credit because troubled borrowers have to repay loans with more debt or modify and extend existing financing agreements.

Mish expects that the portfolio will deteriorate in the next 12 months, and private debt defaults will increase.

Mish said, "You can point to some more worrying indicators.

The interest coverage ratio of many companies is quite low, which is undoubtedly a potential concern."

However, Mish expects that unless the slowdown in the U.S. economy exceeds expectations or falls into a recession, the problems of private credit will not spread to other parts of the corporate debt market or become systemic issues.