FX.co ★ Germany 10Y Bond Yield Off 2-Year Highs

Germany's 10-year Bund yield recently settled around 2.87%, slightly descending from the two-year peak of 2.90% reached on December 22. This decrease comes as the global sell-off temporarily halted, allowing investors to reassess the trajectory of monetary policy. The European Central Bank (ECB) has maintained interest rates for the fourth consecutive meeting, indicating that borrowing costs are likely to remain unchanged for the foreseeable future. This decision reflects steady economic growth and inflation aligning closely with the 2% target.

ECB policymaker Isabel Schnabel expressed that there is no immediate need for a rate increase, even though persistent inflationary pressures caution against reducing borrowing costs. Current market analyses predict a roughly 40% probability of an interest rate hike by March 2027.

In parallel, concerns regarding Germany's fiscal stability have receded following the approval of a €524 billion federal budget for 2026, which includes approximately €180 billion in new borrowing. Nevertheless, the Bundesbank has warned that Germany might face its most significant budget deficit since reunification, urging prompt measures to manage public finances effectively.