U.S. Treasury yields fell after Democrats were projected to take control of both chambers of Congress, prompting investors to consider whether political gridlock could curb new borrowing and reduce the supply of government bonds. Bond prices move in the opposite direction to yields.

The 10-year yield slipped to 4.912%, after reaching 4.89% overnight, while the two-year yield fell to 4.606%. The 30-year yield eased to 5.290%. Five-year notes led the advance, with their yield falling as much as nine basis points to 4.68%. The 10-year yield is now about 45 basis points below its October 7 peak of 5.3645%, its highest level since 2002.

The results pointed to Democratic gains in the House and Senate. Investors viewed opposition control of Congress as a potential constraint on new deficit-funded tax cuts or spending, which could limit bond supply and fiscal stimulus. Analysts cited by Reuters said markets appeared to be pricing in a stronger-than-expected Democratic showing.

The U.S. deficit reached about $2 trillion last year, or roughly 6% of GDP, while national debt was near 100% of GDP. However, a divided government would not resolve the underlying deficit, and persistent borrowing, inflation and Federal Reserve policy could limit how far longer-term yields fall. the White House also retains considerable authority over tariffs and foreign policy.

Treasuries also drew support from demand for safer assets as U.S. stock futures fell by as much as 2% overnight, with AI shares leading declines in Asia amid concerns about tighter regulatory scrutiny. Equities later recovered. The dollar index fell 0.37% to 101.34, its lowest level in a month, while the yen gained 0.7% to 157.55 per dollar.

Investors were also assessing economic data and the outlook for interest rates. September job openings rose by 333,000 to 7.523 million, above all economist estimates and the highest level since May. Quits also rose to their highest level since May 2023. One market pricing snapshot put the odds of a December Fed rate hike at about 85%, up from roughly 73% on Monday. The Fed held its rate at 3.75% to 4.00% last week in a 10-2 vote, with two officials favoring an increase.

The ADP October employment report was due at 8:15 a.m. ET, followed by the ISM services reading at 10 a.m. Economists expected ADP to report a gain of about 69,000 jobs, compared with 90,000 the previous month. Forecasts for Friday’s payrolls report pointed to a more modest increase of roughly 55,000 to 65,000.

The Treasury’s quarterly refunding statement, scheduled for 8:30 a.m. ET, was another focus for bond traders looking for changes to auction sizes. If the amounts remain unchanged, next week’s auctions would total $125 billion: $58 billion in three-year notes, $42 billion in 10-year notes and $25 billion in 30-year bonds.

The Treasury sold a record $839 billion of securities last week and estimated fourth-quarter borrowing at $618 billion on Monday, $10 billion below its August projection. The refunding plans and Friday’s jobs report could help determine whether investors continue to favor the view that political gridlock will restrain borrowing, or focus instead on bond supply and inflation.

Sources: Investing.com News.