Euro zone bond yields nudged down a fraction in early Monday trading, with the mood far calmer than last week when the announcement of a paradigm shift in German fiscal policy drove the biggest weekly selloff in German debt since the 1990s.
Germany’s 10 year yield, (DE10YT=RR) the euro zone benchmark, was down 2 basis points on the day at 2.82%. It rose as high as 2.884% last week, its highest since October 2023.
It finished last week with a weekly rise of 40 basis points, after the parties hoping to form Germany’s next government agreed to create a 500 billion euro ($543.00 billion) infrastructure fund and overhaul borrowing rules.
Analysts expect the move will boost growth, and, due to the significant increase in borrowing required, propel Germany into a new era of structurally higher government bond yields.
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The gap between German and U.S. borrowing costs continued to narrow and was last 143 bps, around its lowest since July 2023, with the U.S. 10 year Treasury yield nearly 6 bps lower. US10Y, (US10DE10=RR)
The German two year yield (DE2YT=RR) dipped 1.5 bps to 2.23% and Italy’s 10-year yield IT10Y was also a whisker lower at 3.90%.