German Borrowing Costs Could Hit 16-Year High Amid Debt Brake Overhaul

Germany's 10-year borrowing costs are projected to potentially reach levels unseen in over 16 years following a historic agreement to reform the country's debt brake. On Tuesday, conservatives and Social Democrats agreed to establish a €500 billion infrastructure fund and revise borrowing regulations to stimulate the economy and increase defense spending. This anticipated increase in borrowing has already impacted bond prices, causing them to decline, and yields to rise. On Wednesday, Germany's 10-year borrowing costs experienced their most significant single-day increase since the late 1990s, rising by 26 basis points to 2.735%. Germany's Greens party has stated it will negotiate firmly before potentially supporting the debt reforms proposed by the conservatives and Social Democrats. The conservatives and SPD require the Greens' support to achieve the necessary two-thirds majority in parliament to enact their plans for reforming the debt brake and establishing the €500 billion infrastructure fund.