It will take many more hours and maybe even days before the final results of Tuesday’s U.S. midterm elections are in, but the bond market has already come up with what it considers to be as the most likely outcome.That outcome is gridlock, according to traders.
Financial markets were assessing a multitude of likely consequences if Republicans take the House, the Senate, or both — such as the risk of a renewed fight over the debt ceiling. Democrats currently hold a slim House majority and control the Senate through the tiebreaking vote of Vice President Kamala Harris. But Republicans are favored to win control of both chambers, based on ABC News’ FiveThirtyEight online election-forecast site.
“We see markets interpreting the midterm elections as Republicans taking one of the chambers of Congress, which means we are looking at gridlock and are not going to see a lot of spending,” said Larry Milstein, senior managing director of government debt trading at R.W. Pressprich & Co. in New York. “It’s fair to say that there will be no government riding to the rescue” if the Fed’s interest rate hikes tip the U.S. into a recession, he said via phone.