By Deborah Levine

Investors may have to consider how various sectors of the bond market will be affected by whether Barack Obama or Mitt Romney wins the election next month, because different types of bonds are seen are expected to strengthen or weaken.

The biggest factor that the president will determine is who will replace Federal Reserve Chairman Ben Bernanke, because the biggest influence on markets is the expectation of low interest rates for the next few years.

"What the Fed is doing is overwhelming what the candidates can do, because it's such a big presence in the bond market," said Anthony Valeri, fixed-income investment strategist for LPL Financial. "If Romney got one of his own people who said the stimulus isn't helping and we don't need it, all bets are off on keeping rates low. We'd have to factor in earlier rate hikes and the impact on the bond market would be higher yields."

Still, municipal bonds and some industries in the corporate-bond market might do better because of anticipated regulation changes, while longer-term Treasury yields are seen rising.

How investors see the president tackling the so-called fiscal cliff just after the election, and how the stock market reacts, also play into investment decisions. Tuesday's debate will be watched more closely after the first debate last week threw a wrench into expectations that Obama would win handily.

The Fed's "lower for longer" benchmark-rate policy is still a huge influence on markets, keeping yields low as the Fed buys bonds and driving investors out of risk-free assets and into stocks and commodities.

Mr. Bernanke's term as chairman ends in January 2014, and many believe he will leave the central bank. The president appoints the Fed chairman. But that's still a couple of years off, and the president (or any politician, for that matter) doesn't have the power to force him out sooner.

"Romney would appoint a new Fed chairman who is more hawkish than Bernanke, which puts into question their pledge to keep rates low until mid-2015," said John Briggs, a U.S. Treasury strategist at RBS Securities.

Still, the Fed traditionally focuses on its dual mandate: trying to keep inflation low and stable, while achieving maximum employment. So what the Fed does should be driven primarily by how the economy is doing at that time -- whether it's growing slowly, more quickly or not at all.

"The Fed is very committed to keeping rates low as long as necessary, and I think that's going to be longer than people think under either president," said Bill Hornbarger, chief investment strategist at Moneta Group.

One factor that may blunt the impact of a new Fed chairman is that monetary policy is set by committee, on which votes and positions rotate very gradually, according to Lee Munson, chief investment officer at Portfolio Inc. in Albuquerque.

"The Fed moves too slow for the next president to alter monetary policy so much that it's going to change bond rates," he said.

 
   Municipal Bonds

Guessing about the Fed aside, what sectors of the bond market are poised to do best under Obama and which under Romney?

Municipal bonds are one of the prime assets to buy if you expect income taxes to go up, because the majority of them offer interest payments exempt from federal taxes. "Obama has suggested increasing taxes on upper earners, so municipal bonds are a potential beneficiary because that makes the tax exemption more valuable," Mr. Valeri said.

A 10-year, tax-exempt municipal bond rated AA currently yields, on average, 1.94%, or equivalent to 2.98% for buyers in the 35% tax bracket, according to Thomson Reuters MMD. That's almost the same as AA-rated corporate bonds maturing in 10 years, which yield 2.96%, and more than 10-year Treasury yields of 1.65%.

The caveat is that in an effort to tackle the federal deficit, both candidates have said that the tax exemption may be ended, or maybe only for taxpayers above a certain income level, though most analysts say there's a slim likelihood of that.

 
   Corporate Bonds

These bonds have been the darling for many fund managers for some time, but different sectors of the debt market may get a small boost if they're expected to do better -- either get more support or less regulation -- under the next president.

"If Romney wins, defense, aerospace, energy, financials, coal, rails, mining and metals are all sectors that should do well because he'd make those industries more secure and more profitable, which is good for their bonds," said Mark MacQueen, co-founder of Sage Advisory Services, which oversees $11 billion in assets.

Under Mr. Obama, infrastructure-related and alternative-energy companies should do better, he added.

As for health care, it's a bit of a toss-up, according to Mr. MacQueen. Some health-care providers could be better off without so-called Obamacare, while companies that improve efficiency in things like medical records and drug delivery may do better under a Democratic leadership.

Analysts also noted that higher-rated corporate debt will continue to act like Treasurys, while lower-rated investment-grade debt and speculative-grade bonds are more likely to track stocks.

A better way for individual investors to try that strategy would be to buy bond exchange-traded funds instead of individual company names, Mr. Munson said.

That's especially true for high-yield bonds, so look at ETFs like iShares iBoxx $ High Yield Corporate Bond Fund (HYG) and SPDR Barclays Capital High Yield Bond ETF (JNK).

Among the biggest investment-grade bond ETFs are the iShares Barclays Aggregate Bond Fund (AGG) and Vanguard Total Bond Market ETF (BND).

 
   Treasury yield Curve

As for what Treasury yields will do, analysts have said they would rise as the economy improves (if it does, and as the flight-to-quality demand fades if Europe gets its debt crisis under control).

However, short-term rates are expected to stay pinned to the federal funds rate. Longer-term yields may rise more, driven by growth and related inflation expectations. That would widen the gap between short-term and long-term yields, steepening the yield curve which charts the spread.

Another concern that may push longer-term yields up is the perception of how hard fiscal policy makers in the White House and Congress will work to reduce the country's wide deficits over the longer term. That's related to the shorter-term tax and spending measures expiring at the end of the year, known as the fiscal cliff.

"Under both candidates, the yield increase will be modest because the fiscal cliff is going to retard economic growth," Mr. Valeri of LPL said. How much depends on which measures are allowed to expire, or get temporarily extended until the spring after newly elected lawmakers are sworn in.

However, the perception is that "Obama won't tackle the fiscal cliff and keep spending roughly on its current track, so the government's credibility to reduce the deficit would come into question," he added.

Benchmark 10-year Treasury yields , which he already expects to rise toward 2% this year from 1.69% currently, could rise to 2.25% to 2.50% under that scenario, Mr. Valeri commented.

Mr. Romney is generally perceived as more pro-business, but the question for bondholders is whether anything he can do will so quickly get money moving in the economy -- something the Fed barely has been able to do with about $2.3 trillion -- that it will send inflation up, Mr. Munson of Portfolio said. That's hard to see happening soon.

Also, just like many throughout the country, a lot of bond investors have very low expectations of lawmakers dealing with the fiscal cliff at all, affecting the economic outlook that's central to Fed policy and bond yields. "They'll keep kicking the can down the road because there won't be enough of a mandate for either party to dig in and solve the problem," Mr. Hornbarger of Moneta said.

 
   Also watching stocks

As for shorter-term moves, bond traders are generally watching for how stocks react to the next debate and the election itself. "Markets now expect Obama to win, so that's priced in," Mr. Briggs at RBS said. "But if Romney wins, that's a surprise, then stocks rally and the yield curve steepens."

Still, who becomes president is far from the only factor in making investment decisions, and strategists and investors emphasized all this is only one part of their decision process. "Personally, I don't think one man can start growth in this country," Mr. Munson acknowledged. "I wouldn't be selling your bond portfolio with a Romney victory."

The biggest factor remains what the Federal Reserve is doing right now.

"The thing that will impact financial markets more than anything is zero interest rates," Mr. Hornbarger said. "As long as there's a zero-rate policy, it will be supportive of risk assets and keep longer-term bond yields lower, though they may creep up a bit."

-Write to Deborah Levine at dlevine@marketwatch.com