Global bond sell-off deepens as Germany jolts markets

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A global bond sell-off deepened on Thursday as investors reeled from a historic slump in Germany’s debt market following a political agreement in Berlin on a fiscal package that is expected to boost the Eurozone’s largest economy.

The yield on the 10-year Bund climbed 0.14 percentage points to 2.92 per cent in early trading on Thursday, following the steepest rise in almost 30 years on Wednesday. Yields on French and Italian debt also jumped.

Japan’s 10-year borrowing costs hit a 16-year high, as the scale of the sell-off in German bonds and the size of the potential fiscal expansion jolted sovereign debt markets accustomed to spending restraint in Germany.

“In a world of fiscal expansion, Germany had looked like an exception,” said Mark Richards, head of dynamic multi-asset at BNP Paribas Asset Management.

The surprise from Germany comes as global bond markets were already grappling with signs of persistent price pressures in economies from the US to Japan to the UK.

Yields on 10-year Treasuries were up 0.06 percentage points to 4.32 per cent. The yield on the 10-year Japanese government bond was up 0.07 percentage points to 1.51 per cent, its highest level since 2009.

“It’s a similar story across the world — a bit of contagion from Germany,” said Mitul Kotecha, a macro strategist at Barclays.

Investors said the continued sell-off in German bonds did not reflect concerns about the sustainability of Berlin’s debt, which at about 63 per cent of GDP is far lower than the level in other big western economies such as France, the UK and the US.

Traders in Asia said the move in Japanese bonds was strongly sentiment-driven. It follows steady increases in JGB yields since the start of 2025 and comes as Japanese inflation continues to exceed the central bank’s 2 per cent target.

A “shift in views towards Japan” following stronger than expected economic growth and higher inflation had also raised market expectations of more hawkish policy from the Bank of Japan, Kotecha said.

The BoJ has raised interest rates twice in the past year, as it attempts to normalise monetary policy after years of ultra-low rates.