Bond market doubts gridlock will ease deficit woes this time

Bond investors are growing skeptical that the potential return of gridlock on Capitol Hill will ease their worries about the US fiscal trajectory the way it has for decades.

Polls suggest that political outcome is likely once again from US midterm elections on Nov. 3.

Democrats are projected to wrest control of at least one chamber of Congress from the Republican Party, while falling short of gaining enough seats to override President Donald Trump's veto power.


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Since the mid-1990s, a split Congress or government has often been a bullish recipe for Treasuries. Benchmark 10-year yields have been lower on average one and 12 months after midterms that produced such a result, Bloomberg-compiled data show. By making it harder to pass major spending legislation, that setup was seen as a sure way to rein in government spending and contain swelling budget deficits.

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This time, investors doubt that legislative paralysis will be enough to bring yields down from around the highest in nearly a quarter century. The federal budget gap, at roughly 6% of the economy, has rarely been this large outside of a recession. - Bloomberg