US bond yields fall; Nasdaq, Dow Jones futures slip 2% as Democrats set for big win in US midterm elections

US bond yields fell on Tuesday as investors sought the safety of government debt amid a sharp decline in equity futures, following projections of substantial Democratic wins in the 2026 US midterm elections.

The benchmark 10-year Treasury yield dropped nearly 5 basis points to 4.902%, while the 2-year yield declined 6 basis points to 4.55%. The 30-year bond yield also fell 5.29%. Bond prices and yields move in opposite directions, with one basis point equivalent to 0.01%.

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US stock futures down

The political developments also triggered a sell-off in US equity futures. Contracts linked to the S&P 500 fell as much as 1.1%, while Nasdaq-100 futures lost more than 2%. Dow Jones Industrial Average futures dropped 341 points, or almost a percent. In a separate reading, S&P 500 futures were down 1% and Nasdaq-100 futures had shed nearly 2%.

The weakness spread to Asian markets, where stocks gave up earlier gains and moved lower. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5%. South Korea's KOSPI declined 1.6%, while Japan's Nikkei dropped 3% after reopening following a holiday. European equity futures were down 1.4%.

The election outcome could have significant implications for several market-sensitive sectors and policy areas, including AI data centre investment, the US fiscal outlook, defence spending and regulation covering healthcare, banking and cryptocurrencies.

Nasdaq futures pointed to investor concerns that a change in political control could lead to tighter oversight of AI and Big Tech, particularly as questions over high valuations and growing AI expenditure persist.

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Kim Seok-hwan, an analyst at Mirae Asset Securities, told Reuters that a potential victory for Democrat John Talarico in Texas could put pressure on chip stocks by raising concerns about tighter restrictions on AI data centre construction. Texas is among the fastest-growing data centre markets in the US.

Kim said a moratorium similar to the one introduced in New York could delay projects further. He added that the market reaction reflected concerns and uncertainty around these issues. Election data firm Decision Desk HQ projected that Talarico had defeated Republican Ken Paxton.

Dollar slips

The dollar weakened against major currencies following the developments. The euro gained 0.5% to $1.1249, while the pound rose 0.37% to $1.3464. The dollar index fell 0.37% to 101.34.

Oil prices were volatile on Wednesday after falling to a four-week low in the previous session.

Investors remain on edge that a substantial Democratic majority in the Senate, in a scenario being described as a potential 'blue wave', could weigh on AI-related stocks. The sector has already retreated in recent weeks amid questions about the pace of data centre spending. However, with votes still being counted in several states, investors cautioned that the market reaction could be temporary, given the sharp swings often seen during election nights.

Election projections pointed to Democrats securing control of both chambers of Congress. Poll estimates indicated a Democratic victory in the House, while the Senate contest was initially still uncertain.

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