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Euro-Area Long-Dated Bonds Rally Ahead of German Spending Vote - BLOOMBERG
BY James Hirai
(Bloomberg) -- European long-dated bonds gained ahead of a crunch vote on Germany’s plan to boost public spending, as analysts say the recent selloff looks overdone.
Yields on German 30-year bonds fell as much as 11 basis points, the most in six weeks, to 3.10% on Monday. Lawmakers will decide on Tuesday whether to back sweeping measures that would release defense spending from debt restrictions and set up a €500 billion ($545 billion) fund for infrastructure investment.
German conservative leader Friedrich Merz last week reached an agreement with the Green party on the debt-funded spending package and investors widely expect it to be approved. The perspective of more German spending and borrowing has ignited a selloff in bonds this month, with yields climbing more than 50 basis points at one point.
“It is certainly possible to construct an argument that the upside for German rates is limited given their current levels,” Rabobank strategists including Richard McGuire wrote in a note. They say the fiscal impulse is unlikely to bear fruit in the near term, while the risk of further concerns about the US economy make shorting bunds on an outright basis likely a “doomed venture.”
Recent gains were led by long-maturity debt, and 30-year yields in France and Spain also dropped at least 10 basis points. That has caused yield curves to flatten across the board, paring the recent steepening move. The gap between Germany’s two- and 30-year rates fell 10 basis points, the most since October.
Strategists at UBS on Friday recommended buying 10-year bunds at around 2.90%, citing underestimated risks from US tariffs to Europe’s economic growth. The benchmark yield hovered around 2.81% on Monday after reaching 2.94% last week.
“The constructive momentum could extend near-term,” said Rainer Guntermann, a strategist at Commerzbank AG. He said US President Donald Trump’s plan to impose reciprocal tariffs on April 2 should limit how far European borrowing costs can rise.
--With assistance from Greg Ritchie.
