German Bund Yields Slide on Weaker Inflation

Germany’s 10-year Bund yield rose to 2.89%, approaching a March 2025 peak just above 2.9%, amid a surge in debt issuance as the country plans to raise a record €512 billion this year to fund infrastructure upgrades and bolster defense spending. Investors also weighed the potential impact of a more hawkish-than-expected Trump nomination of former Federal Reserve governor Kevin Warsh as the next Fed chair, while focusing on the upcoming European Central Bank meeting, where policymakers are expected to leave monetary policy unchanged and assess the deflationary impact of a stronger euro. Last week, ECB policymaker Martin Kocher warned that further euro appreciation could prompt a resumption of interest-rate cuts. The euro recently hit a 4½-year high above $1.20 following Trump’s comments that he was unconcerned about the dollar’s recent decline. Money markets currently assign roughly a 20% probability of an ECB rate cut in September and a 30% chance of a rate hike in April 2027.

Germany’s 10-year Bund yield settled at 2.85%, retreating from near 10-month highs, as investors looked ahead to the European Central Bank’s meeting, where policymakers are expected to weigh the deflationary impact of a stronger euro on the policy outlook. The euro hit a 4½-year high above $1.20 at the end of January following US President Trump’s comment that he was unconcerned about the dollar’s recent decline. Meanwhile, ECB policymaker Martin Kocher cautioned that further euro strength could prompt the central bank to resume interest-rate cuts. Money markets reflected the shift in expectations, pricing in roughly a 30% chance of a rate cut by September, up from less than 10% a week ago, while the probability of a rate hike in April 2027 fell to 20%, down from 50%. On the economic data front, Germany’s economy grew 0.3% in Q4 2025, slightly above forecasts of 0.2%, providing modest support for the market outlook.

Germany’s 10-year Bund yield edged down to around 2.85%, retreating from near 10-month highs after ECB policymaker Martin Kocher warned that further euro strength could prompt the central bank to resume interest rate cuts. The Austrian central bank governor described the euro’s recent gains against the dollar as “modest” and said they did not yet warrant a policy response. However, he noted the ECB may need to act if additional appreciation became large enough to push down inflation projections. Markets slightly increased expectations for a summer easing move, with the implied probability of a 25-basis-point cut in July rising to around 25%, up from roughly 15% earlier. The euro climbed above $1.20 for the first time since June 2021 after US President Donald Trump said the dollar’s value was “great”, despite sliding to a near four-year low.