SMBC Sees Limited Treasury Impact From U.S. Midterm Election

SMBC sees the Nov. 3 U.S. midterm election having a limited effect on interest rate markets in most outcomes, while a Democratic sweep could push Treasury yields slightly higher through increased health spending.

SMBC estimates that fully implementing Democratic health care proposals could add $1.5 trillion in spending over 10 years. Restoring subsidies under the Affordable Care Act could cost about $80 billion over three years and $350 billion over 10 years.

Divided control of Congress would make major tax and spending changes difficult to pass. Congress also is unlikely to directly overturn tariff policy.

Local governments could slow some AI investment by tightening data center construction rules or ending tax incentives. The impact on overall economic growth and the Federal Reserve’s policy path could be limited.

SMBC expects the Treasury to avoid hitting the debt limit before fall 2027. Negotiations could be delayed until early 2028.