Epochal Shift Sparks a Spike in German Bund Yields

In early March, exceptional market movements were observed as German 10-year Bund yields marked the largest weekly increase since the 1990s. This rare event coincided with Germany’s significant fiscal shift, including proposals for infrastructure fund and reforms to the debt brake. These measures, alongside geopolitical uncertainties and Europe’s response to the manufacturing crisis, have reshaped economic prospects. For investors, the rise in yields and widening credit spreads present compelling opportunities to extend duration and capitalize on attractive market conditions.

Distribution of weekly changes in the German 10-year bond yield since 1990

• The chart shows the distribution of weekly changes in the German 10-year bond yield of the since 1990. The highlighted observation, with a value of 0.43%, exceeds the standard deviation by more than four times, representing an exceptional event.
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• Europe's response to the crisis and Germany's fiscal shift: The prospects of radical changes within NATO, reduced support from the United States, and record uncertainty tied to the trade war, combined with the crisis in the European manufacturing sector, have pushed Europe—particularly Germany—to respond decisively.
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• The hopes of a radical shift in fiscal policy have already had a significant impact on the markets: In the first week of March, the German 10-year bond yield rose by 0.43%, marking the largest weekly increase since the 1990s, an extremely rare event. The euro quickly appreciated against the dollar, which was already under pressure due to expectations of a slowdown in the U.S. economy, contributing to a widening of credit spreads.
• Implications for investors: We consider the rise in yields as an opportunity. The movement of the yield curve in Germany has impacted the entire European bond market, with rising yields offering interesting opportunities to gradually extend duration. The expected widening of credit spreads further enhances the appeal of these opportunities.