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German borrowing costs could hit 2008 levels on spending boost, BNP Paribas says
Published by Global Banking & Finance Review®
Posted on March 18, 2025
2 min readLast updated: January 24, 2026
Global Banking & Finance Review®
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Published by Global Banking & Finance Review®
Posted on March 18, 2025
2 min readLast updated: January 24, 2026
German borrowing costs could rise to 4% as spending increases, says BNP Paribas. This may impact bond yields and economic growth.
By Harry Robertson and Alun John
LONDON (Reuters) - German 10-year borrowing costs could rise to 4%, their highest since 2008, in coming years as it massively increases its spending on defence and infrastructure, French bank BNP Paribas said on Tuesday.
Germany's lower house of parliament is set to vote on Tuesday on creating a 500-billion-euro ($546 billion) fund for infrastructure and easing constitutionally enshrined borrowing rules to allow higher spending on security, in a major overhaul of the country's historically tight spending regime.
BNP Paribas's head of rates, FX and commodities strategy Sam Lynton-Brown told a media call on Tuesday that German 10-year bond yields - a proxy for government borrowing costs - could rise as high as 4% in the next three years as the country issues far more bonds to fund the extra spending.
The bank reckons 10-year yields will trade in a range of 2.5% to 3% in the short term and will rise over time as the country issues almost 150 billion euros of extra debt by the end of 2028.
It also said the European Central Bank is likely to keep cutting rates this year but may have to raise them again after 2025 as higher spending boosts growth and inflation, adding the euro could rise to $1.20 from $1.095 currently.
German 10-year bond yields, which move inversely to prices, had their biggest one-day rise since the late 1990s when Chancellor-in-waiting Friedrich Merz announced plans to ditch the country's fiscal straitjacket early this month. They last traded at around 2.85%, up almost 50 basis points in March.
Lynton-Brown called the spending plans "a game-changer for the economy, also for markets".
"Two months ago, we were all in a mindset where the 10-year yield in Germany was anchored near 2%," he said.
"Today, we suggest we need to be in a mindset where we’re anchored at 3%, and three years from now, we could be in a world where that anchoring point has risen as high as 4%."
Goldman Sachs said earlier this month that yields could rise to 3.75%, a level also not seen since 2008.
(Reporting by Harry Robertson and Alun John; Editing by Amanda Cooper and Kim Coghill)
The article discusses the potential rise in German borrowing costs to 4% due to increased spending on infrastructure and defense.
BNP Paribas forecasts that German 10-year bond yields could rise to 4% in the coming years.
Increased government spending on defense and infrastructure is expected to drive up bond yields.
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