German 10-year bond yield falls to over one-week low

Germany's 10-year bond yield fell to 2.44%, near a one-week low, as concerns grew over the pace and financing of European defense spending.

German 10-year bond yield falls to over one-week low

Uncertainty deepened after Friedrich Merz, Germany’s election winner, ruled out swift reforms to the country’s strict borrowing limits, delaying any immediate approval for additional military funding. Investors had previously anticipated that Europe’s largest economy would ramp up defense investments in response to growing geopolitical tensions, but the hesitation has dampened expectations for increased debt issuance, putting downward pressure on yields.

US and Ukraine reached a draft minerals deal

Meanwhile, on the geopolitical front, the US and Ukraine reached a draft minerals deal, a move widely seen as key to securing Washington’s continued support as President Trump pushes for a swift resolution to the war with Russia. The agreement could strengthen Ukraine’s access to critical resources while aligning with US interests in securing key supply chains for strategic minerals, potentially impacting global commodity markets and trade relations. In the monetary policy space, markets are pricing in approximately 82 basis points of European Central Bank (ECB) rate cuts this year, with the first reduction expected at next week’s policy meeting. The growing conviction that the ECB will continue easing its stance has contributed to the decline in German yields. Recent comments from ECB officials have reflected a cautious approach, with some policymakers suggesting that further cuts will depend on the trajectory of inflation and economic growth.

German consumer sentiment to weaken further in March

Adding to economic concerns, data from GfK indicated that German consumer sentiment is likely to weaken further in March, as households grow more pessimistic about both the economic and political landscape. Rising uncertainty over government policy, inflation, and job security has weighed on consumer confidence, which could, in turn, dampen spending and broader economic activity in the months ahead. Investors will closely watch upcoming inflation data and any signals from the ECB regarding the future path of monetary policy.