Treasuries rally as Democrat Congress sweep puts Trump's $5,000 payout on ice
US Treasuries rallied on Wednesday as projections that Democrats would take control of Congress convinced investors that gridlock in Washington will cut government spending, with benchmark 10-year yields falling about 5 basis points in Tokyo trade to 4.90% and two-year yields dropping to a nearly two-month low of 4.5458%. Yields fall when bond prices rise.
At the centre of the move was President Donald Trump's promise of a $5,000 payment to every US adult if Republicans held Congress, a pledge worth $1.2 trillion, or 16% of the federal budget. "Even though that was considered a 5% tail risk, that's now gone," said Andrew Lilley, chief rates strategist at Sydney-based investment bank Barrenjoey. "If it had happened, it would have been a cataclysmic reaction from Treasuries."
Lilley said a Republican president facing Democrats in control of both houses would frustrate spending plans and probably deliver a modest reduction in overall spending. He added that an expected brake on AI development could also slow growth: "It now looks more likely that the Democrats can win in 2028 and if so regulation in AI will take off," he said, something the Fed would probably see as a reason not to hike.
Fed funds futures rallied, trimming market expectations for Federal Reserve rate rises next year. "Bonds are coming out as the clear winner as markets put the AI trade on the chopping block and embrace the higher possibility that further tax cuts are put on ice and government spending slows," said Prashant Newnaha, senior rates strategist at TD Securities in Singapore. The lower yields dragged on the dollar, while nerves about an AI slowdown hit tech shares in Asia.
What it means for Pakistan: The shift matters for Pakistan through the dollar and the cost of borrowing abroad. Lower Treasury yields typically soften the greenback, which eases pressure on the rupee and on the State Bank of Pakistan's foreign exchange reserves, and cheaper US rates can lower the premium Pakistan pays on its international bonds and on fresh external financing. Any slowdown in the US AI trade would also feed through to Asian technology supply chains, though the source gives no Pakistan-specific figures.
