Quantitative Global Macro Strategy: How to trade US midterm elections

Research evidence excerpt

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14 Aug 2026 17:55:12 ET │ 18 pages

Quantitative Global Macro Strategy

How to trade US midterm elections

CITI'S TAKE

We find that midterm election years are historically weak for risky assets,

with credit, rates, and equities all underperforming on a risk-adjusted basis.

Prediction markets point to a divided government, an outcome that is

typically positive for bond markets as it tempers fiscal expectations. In this

scenario of a lost trifecta, Treasury yields have historically rallied postelection, and the 2s10s curve flattens into the event before steepening.

While this historical pattern favors bonds, we see key risks from contentious

debt-ceiling negotiations and the increased use of executive powers on

tariff policy.

Midterm Years Weaken Risky Assets — We find midterm election years are

historically weak for risky assets. Equities, credit, and rates all underperform on a

risk-adjusted basis. Markets typically price an uncertainty premium starting about

50 business days before the election, peaking a few weeks before. This pattern

suggests caution on risky assets is warranted as the elections draw closer. A postelection relief rally often unwinds this volatility into year-end.

Divided Government Favors Bonds — We note prediction markets point to a divided

government, an outcome historically positive for bond markets. A loss of the

incumbent's trifecta tempers fiscal expectations, leading to a post-election rally in

Treasuries. In this scenario, 10Y yields have historically fallen. The 2s10s curve

typically flattens into the event with a slight steepening post-election.

Idiosyncratic Risks Could Disrupt Patterns — We see key risks that could challenge

historical patterns. Contentious debt-ceiling negotiations next year could create

fiscal concerns and market volatility, regardless of the election outcome, though

some of this was likely in play in past years, too. We also highlight the increased use

of executive powers on tariff policy as a source of uncertainty. These factors could

temper the typical post-election patterns.

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Alex Saunders AC

Michael Alexeev

Dirk Willer AC

Adam Pickett AC

Giammarco Miani AC

Alice Zheng AC

Vinh Vo AC

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