The US midterms: why investors care who controls Congress

What happened

The United States holds its midterm elections on Tuesday 3 November, halfway through President Donald Trump's second term. All 435 seats in the House of Representatives are up, along with 35 of the 100 Senate seats and 36 state governorships. Republicans currently control both chambers of Congress, including a 53–47 majority in the Senate.

Prediction markets, where traders bet on outcomes, favour Democrats: Kalshi gave them a 91% chance of winning the House and 65% for the Senate in late October, and Polymarket put the figures at 94% and 69%. Such odds are not forecasts by us and can be wrong. History points the same way, though: since 1934, the president's party has lost an average of 27 House seats in midterm elections.

Update, 5 November: The Associated Press projected that Democrats will control both the Senate and the House from January, Time reported; a few races were still being counted. What it means for budgets and bonds is in our follow-up.

Why Congress matters for the economy

The president runs the government, but Congress holds the purse. It sets taxes and spending, passes the annual budget, and decides whether to raise the debt limit, the legal cap on how much the Treasury can borrow. Those choices decide how much the government needs to borrow each year, which is what bond investors care about most.

When one party controls the White House and both chambers, it can pass large tax or spending changes with a simple majority through the budget process. When control is split, almost everything needs a deal. That tends to mean fewer big changes, but also more standoffs over budgets and the debt limit, which in the past have led to government shutdowns and, in 2011, a downgrade of the US credit rating.

What it means for bond yields

US borrowing costs are already high: the 10-year Treasury yield has been close to 5% this autumn. Investors will look at the result mainly for what it implies about future deficits. A Congress less able to pass new tax cuts or spending could mean slower growth in borrowing; repeated standoffs could add uncertainty. Many other policies that move markets, such as tariffs and foreign policy, sit largely with the president and would change less.

Where it sits in the chain

Government finances feed into Link 4, bond yields: how much a government is expected to borrow affects the interest rate investors demand to lend to it, and US yields set the benchmark for borrowing costs worldwide.

What to watch

• Results from Tuesday night US time, which is Wednesday morning in Asia. Close races can take days to count.
• Treasury yields and the dollar as results come in.
• The next deadlines for the federal budget and the debt limit in the new Congress.