In a short note released this morning, Standard & Poor's analysts said that they do not expect major changes in the short term from the election results, although today's results can affect the status of residential mortgage reform and covered bond legislation.
Royal Bank of Scotland (RBS) MBS analysts said recently that in terms of major reform packages such as those related to housing and the GSEs, the President will need Congressional approval in most cases to effect change. Analysts said that a divided Congress will probably be an obstacle regardless of who the final winner is.
RBS added that a Romney victory might be perceived as probably more bullish for risk assets, while an Obama victory would be the opposite.
JPMorgan Securities analysts said that it might be more complicated than that. Short term, JPMorgan analysts noted that many have said that a Mitt Romney victory would be good for risky assets such as stocks and, by extension, mortgages.
However, they said that recent trading in the mortgage market has implied otherwise. Data analysts presented showed that as the probability of a Romney win has risen, the OAS of mortgages had actually widened. They speculated that a bigger chance of a Romney win has probably raised investors’ uncertainty around future policy.
They pointed out, however, that the explanation might be more complicated since there are a number of factorsinvolved. They recounted that as Romney’s chances slipped in September, QE3 was also announced, which caused mortgage spreads to tighten.
Additionally, they pointed to statements from JPMorgan's rates researchers who have said that the Treasury yields have been correlated with the election probabilities as well, with Treasurys selling off as Romney’s chances seemed to increase. They concluded that the mortgage correlation to the election outcome could be tied more to mortgage directionality with rates.
Either way, S&P analysts said that as it stands, the presidential race looks too close to call, although they cited political analysis that has predicted no change in control of the Senate or House. S&P analysts view this as a neutral for structured finance credit.
Still, James Frischling, president and co-founder of NewOak Capital, believes that the market has been nervous waiting for the outcome of the election.
“Markets dislike uncertainty," Frischling said. "The decision on who will lead the country for the next four years will be decided with Tuesday’s election. The tight and often contentious race has been the focus and has generated a fair amount of anxiety from market participants. Improving economic reports, including the recent better-than-expected jobs report, have been somewhat ignored as we head into the final days before the election.”