The tight race for the US Senate, which is controlled by Republicans, was pivotal to the investment outlook, investors said.
Fading expectations that Democrats would be able to take control of the upper house of Congress triggered a sharp rally in US government bonds this week but the outcome has become murkier in the days following Tuesday’s election. Democrats are projected to maintain control of the House of Representatives.
The Senate race “is of utmost importance for US bond markets because political gridlock may stand in the way of a powerful fiscal stimulus”, said analysts at UniCredit, who said a Democratic clean sweep would have led to the approval of a large stimulus package.
“There is the possibility that we will see two run-offs in Georgia on January 5, which would leave bond markets guessing and might dampen directional momentum for several weeks,” the analysts added.