As midterm season returns and political commentary fills the airwaves, Meketa Investment Group's Global Macroeconomic Investment Committee offers a more durable frame for investors. In their September 2026 newsletter, "What We Are Watching: Midterm Elections1,” Frank Benham, Ryan Farrell, Richard O'Neill, and Orray Taft make a pointed case: the composition of Congress matters less to long-term investors than the structural arithmetic already locked into the federal balance sheet.
The Inheritance Is the Same, Regardless of Who Wins
Whoever takes the House or Senate in November inherits the same fiscal reality: gross federal debt of roughly $40 trillion, an interest bill that now exceeds defense spending, and a budget in which approximately three-quarters of spending is either interest or set by formula. Benham et al. note that "deficits have widened under divided and unified governments and under both parties, which points to structural causes rather than to who holds the majority." The Congressional Budget Office projects the primary deficit will remain near 2% of GDP over the long run, which means, as the authors state plainly, "essentially all of the projected deterioration ahead is interest on debt already issued. That part is not on any ballot."
The Arithmetic Is Turning
For most of the post-financial-crisis period, the average interest rate paid on federal debt sat below the economy's nominal growth rate, a condition that made large deficits manageable. That buffer is narrowing. The weighted average rate on outstanding federal debt stood at 3.45% as of July 31, 2026, but new 10-year notes now yield around 5.00% and 30-year bonds around 5.36%. Roughly $10 trillion of marketable Treasury debt matures within 12 months, and every refinancing at current levels pulls the average higher. The CBO projects the marginal rate and the average rate will cross around 2031 at roughly 3.8%, at which point stabilizing debt-to-GDP "requires a primary surplus rather than merely a narrower deficit."
Net interest is already projected at roughly $1.04 trillion for fiscal 2026, equivalent to 3.3% of GDP and 19% of federal revenue, more than what the government spends on national defense. The CBO projects that share rises to nearly 26% of revenue by 2036.
The Part Nobody Votes On
Mandatory spending on Social Security, Medicare, and Medicaid pays out by formula. It does not require a congressional vote. The committee is pointed on this: "the spending that determines the primary deficit is largely the spending elections do not touch." To underscore the point, eliminating all non-defense discretionary spending, roughly $995 billion, would not close the fiscal 2026 primary deficit of approximately $1.06 trillion.
The Marginal Buyer Has Changed
The bond market must absorb not only the deficit but everything maturing alongside it. What matters for long-term yields is how much long-dated debt the private market must hold, and at what price. Foreign official buyers, once the dominant holders and effectively price-insensitive, have fallen from roughly 50% of marketable debt outstanding in 2014 to approximately 32% today. Their replacements, money market funds, households, and leveraged investors, demand compensation for duration. Term premium reached roughly 0.80% in August, back to levels last seen in 2011. As the authors observe, "Treasuries will always find buyers at some yield. The relevant question is what that yield turns out to be, and what it implies for every other asset priced against it."
Where It Lands
The Treasury curve is the benchmark from which most other borrowing is priced. The 30-year fixed-rate mortgage reached 6.97% in the week ending September 11, 2026. Corporate refinancing is already underway, with roughly $12.4 trillion in corporate debt maturing between 2025 and 2029, according to S&P Global Ratings. Municipal borrowing costs follow Treasury yields, raising the cost of infrastructure at exactly the point when federal support may be constrained. And higher interest expense widens the deficit, which requires more issuance. "The market event comes first and the evidence comes later."
The committee is equally direct on the portfolio implication: when yields rise on fiscal or supply pressure rather than growth, duration becomes a less reliable hedge because equities and bonds reprice off the same higher discount rate simultaneously. The more relevant question, in their view, "is not which party governs, but whether the portfolio's diversifying assets still work in the specific regime where deficits, term premium, and inflation are uncontained together."
5 Key Takeaways for Advisors and Investors
- The fiscal path is substantially locked in by formula. Watch Treasury market signals, including how auctions go, the bill-to-coupon mix, and how term premium moves, rather than election math.
- The crossover point matters. When the marginal borrowing rate exceeds nominal GDP growth, around 2031 by CBO projections, the arithmetic of debt sustainability shifts materially.
- The buyer base shift is structural. Price-sensitive marginal buyers now dominate Treasury absorption, which means term premium is unlikely to return to the near-zero levels that prevailed from 2012 to 2021.
- The repricing is in real rates, not inflation. Short TIPS offer inflation protection, not protection against fiscal deterioration that resolves through higher real yields. The distinction has direct implications for hedging strategy.
- The stock-bond correlation regime is the central portfolio question. Duration hedges equities reliably only when yields move on growth. When they move on fiscal and supply pressure, bonds and equities can reprice together.
Footnote:
1 Benham, Frank, Ryan Farrell, Richard O'Neill, and Orray Taft. "What We Are Watching: Midterm Elections: Debt, Deficits, and the Limits of the Ballot Box." Meketa Investment Group Global Macroeconomic Newsletter, September 2026, https://meketa.com/leadership/midterm-elections-debt-deficits-and-the-limits-of-the-ballot-box-interest-costs-treasury-supply-and-the-discount-rate-on-everything-else/.
