Eurozone bond yields edge higher ahead of pivotal german vote on debt
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Eurozone bond yields moved higher on Tuesday as investors braced for Germany’s historic parliamentary vote on easing the constitutional debt brake, a move that could unlock €500 billion in infrastructure spending and provide much-needed stimulus to Europe's largest economy.
The German 10-year bond yield climbed 2.6 basis points to 2.826%, continuing its upward trajectory after rallying to its highest level since October 2023 last week. The increase reflects heightened anticipation over the potential impact of Chancellor Friedrich Merz's fiscal expansion plans, which could ripple through European financial markets.
The proposed reforms, which have already cleared an initial constitutional challenge from opposition parties, aim to ease Germany’s strict borrowing constraints and drive long-term investment. However, even if the Bundestag lower house approves the legislation later today, it must still pass through the Bundesrat, where regional governments will have a say.
Broader eurozone yields also reacted, with Italy’s 10-year bond yield rising 1.8 basis points to 3.87%, widening the spread over German bunds to 103 basis points. The German 2-year yield, which is closely linked to European Central Bank (ECB) rate expectations, edged 1.7 basis points higher to 2.197%, suggesting that investors remain cautious about the ECB's future policy direction.
Beyond the German vote, traders will closely watch Germany’s investor sentiment data, set for release at 10:00 GMT, which could provide further insights into the economic outlook and potential market reactions.
If the legislation passes, bond markets may see further yield pressure amid expectations of higher sovereign debt issuance, possibly driving risk-on sentiment in European equities. Conversely, if the vote fails or faces delays in the Bundesrat, investor uncertainty could rise, benefiting safe-haven assets like bunds and weighing on peripheral eurozone bonds.
The German 10-year bond yield climbed 2.6 basis points to 2.826%, continuing its upward trajectory after rallying to its highest level since October 2023 last week. The increase reflects heightened anticipation over the potential impact of Chancellor Friedrich Merz's fiscal expansion plans, which could ripple through European financial markets.
The proposed reforms, which have already cleared an initial constitutional challenge from opposition parties, aim to ease Germany’s strict borrowing constraints and drive long-term investment. However, even if the Bundestag lower house approves the legislation later today, it must still pass through the Bundesrat, where regional governments will have a say.
Broader eurozone yields also reacted, with Italy’s 10-year bond yield rising 1.8 basis points to 3.87%, widening the spread over German bunds to 103 basis points. The German 2-year yield, which is closely linked to European Central Bank (ECB) rate expectations, edged 1.7 basis points higher to 2.197%, suggesting that investors remain cautious about the ECB's future policy direction.
Beyond the German vote, traders will closely watch Germany’s investor sentiment data, set for release at 10:00 GMT, which could provide further insights into the economic outlook and potential market reactions.
If the legislation passes, bond markets may see further yield pressure amid expectations of higher sovereign debt issuance, possibly driving risk-on sentiment in European equities. Conversely, if the vote fails or faces delays in the Bundesrat, investor uncertainty could rise, benefiting safe-haven assets like bunds and weighing on peripheral eurozone bonds.