*

High-grade and junk bond spreads tighten slightly

post-election

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Investors expect pro-growth policies, including tax cuts

and

higher spending

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Some investors see Trump's trade policy potentially

affecting

future rate cuts

By Matt Tracy

WASHINGTON, Nov 6 (Reuters) - Corporate bond market

spreads tightened slightly on Wednesday after Donald Trump's

presidential election victory, as the market weighs the pros and

cons of his return to the White House.

The former president's victory in several highly contested

states pushed him over the 270 Electoral College votes needed to

win the presidency. As of Wednesday afternoon, Republican Trump

had won 292 electoral votes to Vice President Kamala Harris' 224

for the Democrats.

High-grade bond spreads closed Tuesday at 84 basis points, just

one point tighter than their tightest levels for the year,

according to the ICE BofA Corporate Bond Index.

Junk bond spreads ended on Tuesday, before election results, at

286 bps, just six bps away from their tightest levels for the

year, according to the ICE BofA High Yield Index.

These spreads tightened another one to three bps on Wednesday,

said investors, with credit markets pricing in pro-growth

policies such as an extension of 2017 tax cuts, higher

government spending and a potential watering down of an expected

increase in bank regulation when the president-elect takes

office in January.

"Credit spreads were tight coming in, and have only

tightened because the perception coming in, which has now taken

more certainty, is that Trump will be positive for the economy,"

said George Catrambone, head of fixed income, Americas, at DWS

Group.

The Fed is expected to cut interest rates another 25 bps at

its next meeting on Thursday.

But some investors see Trump's stated trade policy - including

higher tariffs on China and other countries - as a potential

threat to further rate cuts next year.

"Trump keeps openly telling people that he will increase

tariffs not just on China but with every trade partner," said

Andrzej Skiba, head of BlueBay U.S. fixed income at RBC Global

Asset Management.

"This is a big deal because this could add 1% to inflation.

If you add 1% to next year's inflation numbers, we should say

bye to rate cuts," Skiba said.

A pause in rate cuts could increase financing costs for

corporate borrowers and offset the incentive for greater

acquisition-related debt issuance, which would otherwise stem

from a friendlier merger-and-acquisition environment under

Trump, said Guy LeBas, chief fixed income strategist at

investment manager Janney Capital Management.

But corporate spreads should remain tight in the coming

weeks, and potentially the rest of 2024, before Trump's

inauguration on Jan. 20.

No investment-grade corporate bond issuance was announced on

Wednesday after Trump's victory. Only one junk bond deal was

announced: a $500-million seven-year note offering by

yearbook-maker Champ Acquisition to refinance existing debt and

pay dividends, which is set to price next week.