German 30-year bund yields just rose to the highest since 2011, at 3.55% in something of a warning sign but let's keep things in perspective: US 30-year rates are nearly 5%.
It's not a borrowing crisis but it is working against ECB rates, which aren't likely to be lowered further after a series of cuts last year. It does provide some backing for the euro as these rates are far above the 2015-2023 regime.
Looking at the chart, it's still amazing to me that Germany was able to borrow of 30-years at sub-zero rates. That's the kind of thing that makes no sense, even in hindsight. Of course, anyone who bought those bonds is now sitting on a mountain of unrealized losses.
On the fiscal side, Germany remains one of the most-disciplined countries in the world but there's a looming sense it won't stay that way. The purse strings were loosened after the election last year and military spending is also rising rapidly. The country's automotive sector faces a reckoning from Chinese competition and that's likely to drive deficits ever higher.
Again, this is a game that Germany can play for awhile because both its debt and deficit levels are low after many years of austerity and the general popularity of fiscal prudence in Germany politics.
The euro is higher so far this year but down on the week on broad USD strength. Last week, the euro briefly rose above 1.20 but has backed off to 1.1784. It's flat today and the next drivers will be what happens with economic growth. Germany's economy ministry recently revised down its 2026 GDP estimate to 1.0% from 1.3%. There are risks on both sides of that but in the short term, eyes are on Russia-Ukraine. There is plenty of skepticism about more reports that we're near an end to the war but that outcome would be an unambiguous positive for the euro.
