Germany's $1.3 Trillion Spending Deal Triggers Global Bond Selloff
1min read Germany's recent political deal to fund $1.3 trillion in infrastructure and defense spending has triggered a significant bond sell-off, causing borrowing costs to spike globally. The agreement, which includes the creation of a 500-billion euro infrastructure fund and a rewrite of borrowing rules, aims to stimulate the economy and boost defense expenditures. This has led to a sharp increase in Germany's 10-year borrowing costs, reaching their highest levels in over 16 years at 2.735%.
Analysts anticipate that the additional borrowing and spending could result in a 50-120 basis point increase in 10-year Bund yields over the medium term, potentially reaching a range of 3.0-3.75%. This would be the highest level since late 2008, when bond yields began to decline as central banks responded to the global financial crisis. The bond sell-off has extended globally, with Japan's 10-year government bond yield also surging to its highest levels in 16 years, reflecting broader market turmoil and driving borrowing costs higher worldwide.
The bond sell-off has been intensified by a significant shift in Germany's fiscal policy, leading to a substantial move in bond yields. This shift has been described as the biggest since German reunification, underscoring the magnitude of the changes in borrowing costs. The spike in Germany's 10-year bund to 2.8%, its highest since 2011, has priced in more supply following Germany's fiscal stimulus announcement. This has contributed to broader global market turmoil, with borrowing costs rising across various regions.
The implications of this bond sell-off extend beyond Germany, affecting borrowing costs around the world. The increased borrowing and spending in Germany have led to a resumption of the bond selloff, raising borrowing costs and potentially hindering economic recovery efforts. Investors are closely monitoring the situation, as any disappointment could further exacerbate the selloff and drive borrowing costs even higher. The global bond market remains in full swing, with the selloff continuing to impact borrowing costs and economic stability worldwide.
