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07.22.2026

MIDTERMS PLAYBOOK

Our baseline points to a divided government, limiting the scope for major fiscal and trade policy changes. This backdrop should be modestly supportive for USTs, lead to a moderate curve steepening, underpin global equities, and remain neutral to slightly positive for the USD.

The approaching US midterm elections could reshape the domestic political equilibrium and become increasingly relevant for markets as the campaign moves closer to November. Current polls point to a challenging environment for the Republican Party, with Democrats ahead in the generic ballot and in a position to compete for at least one chamber of Congress. Against this backdrop, our baseline is that Democrats win one chamber. 

Under our baseline, we would expect a divided-government equilibrium, with higher congressional scrutiny but limited institutional disruption. This should reduce the probability of further fiscal expansion and weaken the political momentum behind the most aggressive parts of the tariff agenda, whilst leaving the President with meaningful executive flexibility on broader trade policy. 

We expect a NEUTRAL to MODERATELY POSITIVE impact on USTs under our baseline scenario and we would recommend a LONG positioning with a bias for a MODERATE STEEPENING of the curve. This is because we expect no deterioration in the fiscal outlook, status quo in terms of trade policy, AI investment to continue to power the US economy, the Fed to remain on hold in 2026, while retaining an easing bias in 2027 as disinflation continues to progress and the political risk premium to decline moderately. 

Our baseline suggests a MODERATELY POSITIVE outcome for equities. Partial gridlock would keep impeachment risk low and limit the scope for major policy shifts. We would remain neutral to mildly constructive on US equities, while expecting non-US markets to catch up tactically. Sector positioning would become more balanced, with a modest preference for quality Growth. 

FX-wise, we expect a split Congress to be NEUTRAL to MODERATELY POSITIVE for the USD, as the moderate decline in the political risk premium, coupled with a still favourable rate differentials of the US vs. the rest of the world will continue to favour the greenback, at least until 2027.


Fabio Fois
Head of Investment Research & Advisory 

Chiara Cremonesi 
Senior Rates Strategist 
Investment Research

Cosimo Recchia 
Senior Equity Strategist 
Investment Research​

Matteo Gallone 
Macroeconomist 
Investment Research

Francesco Ponzano 
Junior Equity Strategist 
Investment Research

Mattia Banin 
Junior Macro Analyst

Investment Research


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