Germany's Fiscal Shift Fuels Global Bond Sell-Off and Euro Surge

A historic policy change in Germany to boost defense and infrastructure spending drives up borrowing costs, rattles global bond markets, and strengthens the euro.

Germany's coalition agreement, led by Chancellor-in-waiting Friedrich Merz, proposes bypassing the constitutional debt brake to fund increased defense and infrastructure spending.
The announcement caused the largest single-day rise in German 10-year bond yields since reunification, with yields jumping nearly 30 basis points.
The euro strengthened significantly against the dollar, climbing to its highest level since November, as markets priced in the transformative fiscal policy shift.
The European bond sell-off extended to other nations, with borrowing costs rising across the eurozone, including Italy, France, and Switzerland, as well as in Japan and the U.K.
Analysts warn of potential inflation risks and long-term debt concerns, with some predicting Germany's debt-to-GDP ratio could reach 100% by 2034.