The worst selloff in euro zone government bonds in over 25 years entered a second day on Thursday, as investors braced for a sharp increase in debt supply due as Germany prepared to dramatically incraese its fiscal spending.
Germany is in for a massive ramp-up in spending, with a special 500-billion euro fund for infrastructure, and plans to exclude defence investment from its debt rules. Germany’s 10-year bond yield, the euro area’s benchmark, was up 7 basis points (bps) at 2.85%.
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It jumped by 30 bps the day before, in its biggest daily rise since May 1997.
Money markets showed traders also scaled back their bets on European Central Bank monetary easing, just hours ahead of the central bank’s policy decision, pricing in a deposit rate of 2.12% by December from 1.92% late Tuesday.
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