Result of mid-term elections is a friendly outcome for bonds markets – Morgan Stanley

It is nearly two full days after the mid-term elections in the US and while we still do not know the outcome, markets may know enough to forecast its impact, strategists at Morgan Stanley report.

Republicans controlling at least one chamber of Congress is enough to yield a divided government

“It may take several days, maybe weeks to determine which party will control the Senate. But knowing which party controls the Senate won't matter much if Republicans gain a majority in the House of Representatives, as they appear likely to do as of this recording. That's because Republicans controlling at least one chamber of Congress is enough to yield a divided government, meaning that the party in control of the White House is not also in control of Congress and so can't unilaterally choose its legislative path.”

“For bond markets, this is a mostly friendly outcome. It takes off the table the scenario that could have led to fiscal policy from Congress that would cut against the Fed's inflation goals. That outcome might have suggested inflation was less a political and electoral concern than previously thought, and through a broader Senate majority, given Democrats more room to legislate.”