Global bond markets experienced a sell-off following the German government’s announcement of a new spending plan, which caused a rise in yields. Germany’s 500 billion euro infrastructure plan and increased defense spending are reshaping the market landscape. European defense spending increases and shifts in US policy are also influencing global bond yield trends. On Thursday, the global bond market saw a sell-off after German bonds were hit by the country’s plans to increase government and defense spending. This news from Germany, Europe’s largest economy, shocked debt markets and drove up German bond yields, indicating a fall in bond prices as the two factors move inversely. On Tuesday night, Germany’s political leaders unveiled spending plans, including earmarking 500 billion euros for a decade-long infrastructure investment program, representing 12% of GDP, and exempting defense spending from a strict borrowing cap. According to Kyle Rodda, a senior financial market analyst at Capital.com, this marks a significant shift in Germany’s fiscal philosophy. Consequently, the German government will need to issue more bonds to finance the spending and raise yields to attract investors. On Wednesday, 10-year German bonds had their worst day since March 1990. Early Thursday, Germany’s 10-year bond yield was seven basis points higher at 2.85%. Deutsche Bank analysts described this as one of the most historic shifts in German postwar history, drawing parallels with the German reunification era. On the same day, the European Union announced that member states would increase defense spending, marking an ‘era of rearmament,’ which further supported regional bond yields. ING analysts noted that markets seem to be revising expectations about Europe’s adaptability, challenging fears of secular stagnation. These announcements follow reports that US President Donald Trump paused US military aid to Ukraine and urged NATO members to allocate more GDP to defense. Nomura analysts highlighted that Germany and the EU leadership now recognize the need to enhance defense capabilities to protect Europe and support Ukraine. The negative sentiment in the European bond market spread to Japan, where the 10-year yield reached 1.5% for the first time since June 2009, with bond yields in Australia and New Zealand also rising. Rodda from Capital.com attributed the bond rout to news from Europe. Expectations of fiscal and economic support from the Chinese government and the Bank of Japan’s recent signal of higher benchmark rates contributed as well. In the US, 10-year Treasury yields rose to about 4.3%, although they remain lower overall this year. Higher bond yields can increase interest rates on consumer debt. Treasury Secretary Scott Bessent stated that Trump wants lower interest rates, focusing on Main Street rather than Wall Street. — news from Markets Insider
