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A global bond sell-off deepened on Thursday as investors reeled from a historic slump in Germany’s debt market following a political agreement in Berlin on a vast spending package for the Eurozone’s largest economy.
The yield on the 10-year Bund climbed a further 0.07 percentage points to 2.85 per cent by late morning on Thursday, following the steepest rise in almost 30 years on Wednesday. Yields on French and Italian debt also jumped.
Japan’s 10-year borrowing costs hit a 16-year high, as the scale of the sell-off in German bonds and the size of the potential fiscal expansion jolted sovereign debt markets accustomed to spending restraint in Germany.
“In a world of fiscal expansion, Germany had looked like an exception,” said Mark Richards, head of dynamic multi-asset at BNP Paribas Asset Management.
The surprise from Germany comes as global bond markets are grappling with signs of persistent price pressures in economies from the US to Japan to the UK.
The trend higher in European bond yields in recent months has been more dramatic given that major central banks are cutting interest rates, with the European Central Bank widely expected to reduce rates on Thursday by a quarter-point from the current 2.75 per cent.
The yield on the 10-year Japanese government bond was up 0.07 percentage points at 1.51 per cent, its highest level since 2009.
“It’s a similar story across the world — a bit of contagion from Germany,” said Mitul Kotecha, a macro strategist at Barclays.
Yields on 10-year Treasuries were up 0.03 percentage points at 4.30 per cent as Europe’s bond price declines weighed on the US. But that came after a prolonged fall in US yields this year as investors fret about the health of the world’s biggest economy.
Investors said the continued rise in German yields reflected much improved growth prospects for Europe’s biggest economy, not concerns about the sustainability of Berlin’s debt, which at about 63 per cent of GDP is far lower than the level in other big western economies such as France, the UK and the US.
German stocks touched a record high, adding to the previous day’s gains, before falling back to trade 0.4 per cent higher. Siemens Energy, one of the infrastructure companies that is expected to benefit from the spending boost, was up 4.4 per cent.
The market “always expects Europe to be slow to act”, said Jefferies economist Mohit Kumar. The feeling among investors “was that finally European leaders are waking up to the need of fiscal spending”.
Germany’s debt is the benchmark safe asset for the wider Eurozone, and its yield rise has dragged the borrowing costs of other countries higher. France’s 10-year yield rose 0.07 percentage points to 3.56 per cent.
The broader move higher in borrowing costs will add to pressure on countries with greater debt burdens. Gordon Shannon, a fund manager at TwentyFour Asset Management, said this week’s moves could prove a “catalyst for investors globally to think about the sustainability of fiscal positions”.
While they can “still be comfortable” with Germany’s borrowing, the existing level of debt is more “daunting” for countries such as France and the UK, he added.
The world’s sovereign bond issuance is expected to reach a record $12.3tn this year, driven higher by fiscal stimulus packages in big economies, according to estimates from S&P Global Ratings this week.
US stocks, which rallied into Wednesday’s close, were set to open lower. Futures tracking the S&P 500 index were 1.1 per cent lower, and the Nasdaq 100 down 1.4 per cent.
Traders in Asia said the move in Japanese bonds was strongly sentiment-driven. It follows steady increases in yields since the start of 2025 and comes as Japanese inflation continues to exceed the central bank’s 2 per cent target.
A “shift in views towards Japan” following stronger than expected economic growth and higher inflation had also raised market expectations of more hawkish policy from the Bank of Japan, Kotecha said.
The BoJ has raised interest rates twice in the past year, as it attempts to normalise monetary policy after years of ultra-low rates.
