A new story is spreading across Wall Street on Wednesday: the midterm elections were good news for bonds.

The logic is simple. A Democratic-led Congress can block President Donald Trump's expansionary fiscal bills, restraining Washington's spending and, with it, the flood of new Treasury bond supply that has pushed yields to multi-decade highs.

Not everyone is buying it.

"The only real avenue from the midterms that could conceivably trigger a sustained dollar decline, as we see it, is if the Democrats are successful in pressuring Trump to end the Iran war early, thus triggering a move lower in oil prices and a reversal in safe haven flows," Matthew Ryan, head of market strategy at Ebury, told MarketDash in an exclusive interview Wednesday.

"But ending the war would need Republican help and Trump keeps the final say, so a deal would more likely come from him than from Congress," he added.

In other words, the key to lower yields does not sit on Capitol Hill. It sits in the Oval Office.

Treasuries Rallied, But Yields Are Still Well Above January Levels

Bonds did catch a bid after Democrats won control of both the House and the Senate.

The 10-year Treasury yield fell 4.7 basis points to 4.92% Wednesday, while the 2-year yield slipped 3.5 basis points to 4.60%. The 30-year yield eased 3.3 basis points to 5.30%.

Still, the relief barely dents the year's damage.

Ten-year yields started 2026 near 4.19%, which means they are still up about 73 basis points this year. The 2-year yield has climbed more than 110 basis points from about 3.49%, a sign that markets have been repricing the Federal Reserve rather than Washington's deficit alone.

The iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) rose 0.4% Wednesday, but it remains down about 7% in 2026. Meanwhile, the U.S. Dollar Index fell 0.5% to 101.35.

Why Gridlock Is a Brake, Not a Reversal

Ryan's skepticism starts with the veto.

Democrats are unlikely to reach the two-thirds Senate majority needed to override Trump. As a result, they can stop new tax cuts and spending, but the measures already in place stay.

"Congress can block new spending but cannot unwind what is already in place," Ryan said in emailed comments earlier Wednesday. He added that the real fiscal test will come with the debt-ceiling negotiations in 2027.

The result was also no surprise. Prediction markets had priced a probability above 90% that Democrats would flip the House and above 70% that they would take the Senate as well, according to Ebury's post-election report.

Oil, Not Congress, Is the Real Swing Factor for Yields

For Ryan, high yields are more a byproduct of energy prices than of fiscal policy.

West Texas Intermediate crude fell 3.0% to $93.22 a barrel Wednesday, while Brent dropped 2.8% to $100.65. Both are still up more than 60% this year.

That keeps inflation expectations elevated. Consequently, bond investors are reluctant to accept lower yields.

"With the Iran war ongoing, we see limited pullback in yields in the near-term, both in the US and globally, which should both keep US assets attractive due to rate differentials and support safe haven flows into the greenback," Ryan said.

A Democratic Congress could increase pressure on the White House to end the conflict. However, it cannot dictate U.S. military or foreign policy, according to Ryan.

Who Wins If Bond Markets Calm Down?

Ryan still sees one route to a softer dollar.

"That said, any signs that trading in bond markets is becoming more orderly could be bearish for the dollar, and we would expect higher-yielding emerging market currencies to be the main beneficiaries of the move," he said.

The iShares MSCI Emerging Markets ETF (NYSE: EEM) is up about 9% this year.

The Senate result also matters for the Fed. Every nominee to the central bank's board needs Senate confirmation, so Democrats can now slow Trump's push for governors who favor lower rates.

"At the margins, we think that the Democratic win in the Senate should allay Fed independence fears, though the impact in reality is small given few governor positions will actually be available between now and the end of Trump's term," Ryan said.

Congress can slow the supply of new bonds. It cannot set the price of oil.

For Ryan, that is why the path to lower yields still runs through the White House rather than Capitol Hill.