US Treasury yields declined on Wednesday as investors moved toward government bonds following the Democratic Party’s sweeping victories in the midterm elections, which handed it control of both chambers of Congress.
The yield on the benchmark 10-year Treasury note slipped to around 4.93%, compared with levels near 4.94% in the previous session.
Yields on longer-dated bonds also eased, while the two-year Treasury yield edged higher.
Treasury prices move inversely to yields, meaning the decline reflected increased demand for government debt.
Democratic victory raises fiscal restraint prospects
Democrats secured control of both the House of Representatives and the Senate, flipping several traditionally Republican seats, including in Texas, Kansas, South Carolina, Ohio and Iowa.
The election outcome prompted investors to reassess the outlook for government spending, taxation and regulation during the remaining years of President Donald Trump’s term.
Expectations that a divided government could limit new fiscal expansion helped support demand for Treasurys, although concerns over persistent budget deficits remain.
The results are expected to create a more challenging legislative environment for the Trump administration, potentially limiting its ability to push through major spending initiatives and tax changes.
Investors viewed the outcome as reducing the near-term possibility of additional fiscal expansion, supporting government bonds as markets sought safer assets following the election.
Andrew Jackson of Vontobel said a divided government could support Treasurys by restricting further spending increases.
“But blocking new spending is not the same as reducing the existing deficit,” the head of investments said, warning that persistent budget deficits and heavy Treasury issuance could limit how far longer-term yields fall.
Broader market also gaining
US equity futures initially fell sharply following the election results but recovered ground later in the session, turning green early morning.
Nasdaq-related futures experienced the largest swings as investors assessed the potential impact of greater Democratic oversight of artificial intelligence companies and data-center expansion.
Technology stocks faced particular pressure amid concerns that stricter regulation, energy-use restrictions and permitting delays could affect the pace of AI infrastructure investment.
Oil prices remained under pressure, with Brent crude trading around $102 a barrel following recent declines. Softer energy prices helped ease some inflation concerns.
Gold moved higher as a weaker dollar and falling Treasury yields supported demand for the precious metal.
Economic data also in focus
The bond market also assessed recent economic releases.
Tuesday’s Job Openings and Labor Turnover Survey showed US job openings rising to 7.52 million in September, exceeding economists’ expectations and indicating continued resilience in the labor market.
The Institute for Supply Management’s manufacturing index also came in stronger than expected on Monday, pointing to sustained factory activity.
These reports had contributed to slight upward pressure on yields earlier in the week.
Investors will now turn their attention to additional labor-market data, including the October employment report due later this week, for further clues about economic conditions and the Federal Reserve’s next policy moves.
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