Democratic sweep seen driving bond rally after Nov. 3 U.S. midterms
Investor expectations ahead of the Nov. 3 U.S. midterm election point to lower Treasury yields if Democrats win control of both chambers of Congress. The latest Markets Pulse survey shows that outcome is seen as more supportive for bonds than either a split Congress or continued Republican control.
Highlights
- More than half of 301 Bloomberg Markets Pulse survey respondents expect Treasury yields to fall in the next 12 months after a Democratic sweep in November's midterms.
- A split Congress would lead 36% of surveyed investors to expect declining yields over the following year, signaling a weaker bond rally catalyst.
- Only 26% of respondents anticipate lower yields if Republicans control both houses, the least supportive scenario for a U.S. bond market rally.
Survey signals strongest support for Treasuries
As reported by Bloomberg's Markets Pulse survey, more than half of the 301 respondents in a poll conducted from Oct. 2 to Oct. 17 say Treasury yields would fall over the 12 months following a Democratic sweep.That makes unified Democratic control of the House and Senate the election outcome most closely associated with a bond rally in the survey. Because bond prices typically rise when yields fall, the results suggest investors see that scenario as the most favorable for Treasuries.
Split Congress and Republican control seen as weaker catalysts
In a separate question on divided government, 36% of respondents say yields would decline over the following 12 months if Congress is split.Only 26% expect yields to fall if Republicans control both houses, indicating investors in the survey view that outcome as the least likely of the three scenarios to trigger a broad rally in the U.S. bond market.
In our earlier article on rising long-term Treasury yields and the widening U.S. deficit, we noted that borrowing costs above 5% are tightening financial conditions by pushing up mortgage rates and increasing the government’s interest bill. The piece also highlighted how persistent fiscal strain and political gridlock can limit prospects for deficit reduction, keeping upward pressure on yields even as investors weigh the appeal of Treasuries.
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