German Bund yields climb as trade tensions ease

Germany’s 10-year Bund yield climbed toward 2.65%, reaching its highest level since May 23, as trade tensions eased following news that the US proposed a deal to the EU maintaining a 10% baseline tariff, with exemptions for sensitive sectors such as aircraft and spirits.

The proposal helped reduce uncertainty in financial markets, contributing to the upward pressure on bond yields. However, Washington gave no indication it would extend exemptions to politically sensitive industries like cars, steel, aluminum, or pharmaceuticals, as requested by the EU, keeping the outlook for key European exporters clouded.

The bloc is aiming to finalize a preliminary agreement this week to lock in the 10% tariff beyond the August 1 deadline, while negotiations for a permanent deal continue amid lingering disagreements.

On the economic front, Germany’s exports and imports fell more than expected in May, reflecting ongoing global demand weakness and trade disruptions. Nevertheless, industrial output posted a surprise increase, suggesting that domestic production remains resilient despite external headwinds.

Bundesbank President Joachim Nagel warned that the US tariffs could weigh disproportionately on Germany’s export-heavy economy in 2025–2026, potentially curbing growth. However, he expressed cautious optimism, projecting a recovery beginning in 2026, supported by increased public investment and planned reforms to the constitutional debt brake. These measures, he noted, could lift Germany’s potential growth rate by as much as 0.75 percentage points by 2027, helping to offset trade-related drag and support long-term economic stability.