German borrowing costs surged by the most in 28 years on Wednesday, as investors bet on a big boost to the country’s ailing economy from a historic deal to fund investment in the military and infrastructure.
The yield on the 10-year Bund surged 0.25 percentage points to 2.73 per cent, its biggest one-day move since 1997, with markets braced for extra government borrowing.
Chancellor-in-waiting Friedrich Merz late on Tuesday agreed with the rival Social Democrats (SPD) to exempt defence spending above 1 per cent of GDP from Germany’s strict constitutional borrowing limit, set up a €500bn off-balance sheet vehicle for debt-funded infrastructure investment and loosen debt rules for states.
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