Investing.com - Germany’s 10-year bond yield could rise to 4% as investors assess the impact of the country’s plans for renewed spending on its borrowing costs, according to analysts at Aviva (LON:AV) Investors.
In a note to clients, the strategists led by Vasileios Gkionakis said that a range of "3.5% to 4% is entirely feasible" due to Berlin’s recent fiscal plans and the trajectory for growth, inflation, and monetary policy in Europe’s biggest economy.
No timing for this increase in the yield -- a key benchmark for European debt -- was estimated. At 4%, it would match levels last notched during the 2008 financial crisis. Germany’s 10-year yield stood at 2.7585% on Thursday.
Earlier this week, Germany’s lower house of parliament, the Bundestag, voted in favor of several changes to the country’s constitution that would allow for a loosening in fiscal rules.
The closely-monitored vote on Tuesday passed with 513 MPs in favor of the amendments and 207 against them. A required 489 votes, or a two-thirds majority, was needed for the reforms to go ahead.
Chancellor-in-waiting Friedrich Merz’s conservatives as well as the center-left Social Democrats and the Greens party backed the measure. The three had hashed out an agreement in principle last week, with the window closing to pass the legislation before a new parliament begins its first session on March 25.
The amendments now go to Germany’s Bundesrat, the upper house of parliament, for a scheduled vote on Friday.
Merz has argued that the moves, which mark a shift away from Germany’s longstanding "debt brake" that placed a cap on borrowing and pave the way for new investments on defense and infrastructure, were necessary to help the country expand military spending during a time of heightened geopolitical tensions.
Gkionakis said the changes could provide a boost to economic activity, adding that a subsequent uptick in nominal GDP may translate into elevated long-term yields.