Overview

• 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.