Gold, Corporate Bonds Backed as Hedges for U.S. Election Risk

(Bloomberg) -- Gold and investment-grade corporate bonds can buffer portfolios if disputes over the result of the U.S. presidential election flare up and temporarily roil markets, according to Singapore’s largest bank.

Good quality corporate bonds are preferable to low-yielding Treasuries for such a role, Dylan Cheang, a strategist at DBS Group Holdings Ltd., said in emailed comments.

Together with gold, they can help portfolios weather “short-term volatility potentially arising from a contested election,” Cheang added. He’s previously said a drop in U.S. stocks during the vote would offer a buying opportunity as political uncertainty is unlikely to have a long-lasting impact on markets.

The cost of hedging for a rancorous outcome to the Nov. 3 election has been climbing, in part on concern that voting by mail amid the pandemic could delay the result. Strategists at Morgan Stanley and Tallbacken last week indicated that currencies might offer the best hedges because volatility looks cheaper in foreign-exchange markets relative to other asset classes.

Cheang suggested complementing a core portfolio with Cboe Volatility Index -- or VIX -- futures, adding “stretching the maturities to November or December makes more sense” as October contracts are “sharply elevated.”

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