Advisors, Municipal Bond Managers Eye Governor Races In Swing States

Some investors also see merits in Rauner's proposals.

"I would think that Rauner offers some long term hope for altering the business-as-usual approach," said Chicago-based John Miller, co-head of fixed income at Nuveen, which has around $530 million in Illinois State general obligation bonds.

The election looks set to come down to the wire with a Chicago Tribune Oct. 23 poll showing Rauner with 45 percent support and Quinn had 43 percent.

While tax hikes are inherently unpopular, cutting costs is also difficult with several such efforts challenged in courts.

In Kansas, governor Sam Brownback chose to do the polar opposite and slash taxes hoping to spur the economy.

The state is a minor player in the municipal debt market, but the race there is interesting because it shows how doing what is seemingly popular is not a sure winner either.

The tax cuts triggered a Standard & Poor's credit downgrade in August and polls in local media show Brownback trailing rival Democrat Paul Davis who promises to end the incumbent's "experiment."

Bond investors will also watch races Pennsylvania and Rhode Island.

Rhode Island candidate Gina Raimondo, the Democrat state Treasurer and a former venture capitalist, led some of the nation's most far-reaching pension reforms in 2011 that drew lawsuits from public sector unions over benefit cuts.

Cumberland's Mousseau said extending retirement ages and raising workers' contributions were hardly "anything magical" -- but showed leadership and he would view the state's bonds more favorably if Raimondo were to get elected.

Eaton Vance's Brandon also said he would be watching Rhode Island race.

"Labor does not like her, but I think the average person on the street who doesn't have a state pension likes what she says."

In Pennsylvania, where Governor Tom Corbett is trailing Democratic opponent Tom Wolf, the hot-button issues are the governor's cuts in education funding and escalating pension liabilities which contributed to a recent credit ratings cut.

Corbett's pension reform proposals failed to gain traction during his term while Wolf says he favors maintaining the status quo for public employees' pension plans and BlackRock's Hayes sees the election as one of the most fiscally important.

Some ballot initiatives are also catching investors' attention, including one in California, where voters will decide whether to require that surplus revenues are saved for its Rainy Day Fund and used for emergencies, debts or budget deficits.

Democratic Governor Jerry Brown, who has turned around the state's finances after years of deficits, is ahead in the polls against Republican Neel Kashkari, according to local media.

Hayes said in a research note that California's Rainy Day ballot proposal has the potential to significantly improve the state's future financial flexibility and credit rating.

"We always want the outcome that gives a better credit profile for any city or municipality," said Hayes.