Investors may be "underpricing the risk" of a pro-sovereignty government in Quebec, but a Parti Québécois victory in Tuesday's election promises only a muted initial response after a campaign of soothing words where the markets are concerned.

On the eve of a vote expected to give the PQ at least a minority government, markets have reacted little to the prospect of the party returning to power for the first time in nearly a decade. Other than a modest decline in Quebec's provincial bonds, there has been little evidence that the election has made much of a blip on traders' radar screens.

With support for sovereignty in Quebec considered lukewarm at best, PQ leader Pauline Marois has generally toned down the sovereignty talk until the last few days while taking a moderate line on economics and spending, soothing the markets' worst fears.

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"Marois has been pretty reasonable," said Ed Devlin, head of Canadian portfolio management at powerful Pacific Investment Management Co. LLC (Pimco), the world's biggest bond investor.

Early in the campaign, Mr. Devlin had sparked a minor furor in Quebec when he fired a warning shot across the province's political bow about the danger of a resurgence of the PQ and separatist rhetoric. He published a commentary cautioning Quebec's political leaders against "policies and rhetoric that undermine international investors' confidence," going so far as to suggest that a serious threat of separation could turn Quebec's bond market into another Italy.

"I was hoping [to get the political leaders' attention], yes," Mr. Devlin said.

And he did. In the francophone press, the PQ publicly dismissed Mr. Devlin's commentary as fear-mongering. But the subsequent tone of the campaign has been about as market-friendly as Mr. Devlin could have hoped.

The spread on Quebec provincial bonds relative to Ontario's bonds – which reflects the premium the market demands on Quebec over its comparable provincial neighbour – did widen slightly during the campaign. But even as a PQ victory became more likely, the spread remained about 15 points – toward the upper end of the typical range, but not a sign of a particularly nervous market. (A basis point is 1/100th of a percentage point.)

"If you look back to the last time the PQ won, [the spreads] were a lot wider," said David Schaffner, CEO of Vancouver-based asset manager Leith Wheeler Investment Counsel.

Indeed, the effect of a PQ government on financial markets has become more muted over time. The first election of the PQ, in 1976, sent violent tremors through Canada's stock and bond markets, and has been blamed for triggering the long-term decline of the Canadian dollar. The Quebec-Ontario bond spread hit 50 basis points when the PQ was elected in 1994, and spiked to more than 60 basis points during the Quebec sovereignty referendum of 1995. When the party was re-elected in 1998, the spread peaked at 40 basis points.

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The current more muted response, observers said, reflects investor belief that Quebec voters aren't looking for another referendum on sovereignty – only a new government to replace the fading Liberals, who have been stung by corruption-related allegations. The bond market also appears to be pricing in only a minority PQ government.

"The outcome of the election in which PQ forms the government should not necessarily be taken as a signal of increased support for independence," said Charles St-Arnaud, economist at Nomura Securities International Inc., in a note to clients. "Moreover, it would be very hard for the PQ to initiate a referendum in a minority government."

"However, it raises somewhat the likelihood of an eventual referendum," he said.

"We believe that a victory by the PQ would have a very marginal negative impact on Canadian assets, especially the Canadian dollar, given the increased political uncertainty," he said. He recommended that investors buy into any declines in the Canadian markets in response to a PQ win, on the grounds that the risk of a referendum "remains low."

Added Leith Wheeler's Mr. Schaffner: "There's a long way between electing the PQ and winning a sovereignty referendum."

But other market watchers fear investors are underplaying the risk. With nearly a decade since the pro-sovereignty party has held power, and 17 years since the last referendum brought the country heart-stoppingly close to divorce proceedings, the markets have forgotten the potential gravity of a PQ win.

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"I would say the market right now is significantly underpricing the risk," said Scotia Capital Inc. currency strategist Camilla Sutton. She said Quebec has been overlooked as international investors focus on the potential for monetary stimulus announcements from the U.S. Federal Reserve Board and the European Central Bank.

"Outside of Canada, there's almost no one talking about this."

Still, Ms. Sutton believes a PQ victory would warrant a "minimal" risk-related market response. She suggested the Canadian dollar could reasonably lose about a penny to its U.S. counterpart.

Pimco's Mr. Devlin acknowledged that given the tone of the PQ's campaign, even a PQ majority government "doesn't move the fiscal needle a lot." However, he's concerned that should the PQ become more aggressive on the sovereignty question – which could happen if, for instance, it wins such a slim minority that it is forced to court the more radical fringe party Quebec Solidaire to maintain power – then the stakes in the market could become significantly higher, not just for Quebec but for Canada.

"Canada has been viewed [by the markets] as a place of stability. That could change," he said. "Things can turn quickly if you lose the confidence of the global bond market."