Eurozone Bond Yields Surge Amid Defence Spending Speculations

Eurozone bond yields reached a two-week high as investors speculated increased borrowing for defence funding amid U.S.-Russia talks on the Ukraine war. Germany's benchmark 10-year bond yield rose, driven by Trump's dialogues and Europe's increased defence spending responsibilities, putting upward pressure on yields.

Eurozone bond yields have surged to their peak in over two weeks, driven by speculation of heightened borrowing for defence funding, amid discussions between the U.S. and Russia regarding the war in Ukraine. Germany's 10-year benchmark yield increased by 4 basis points to reach 2.529%, the highest since January 31.

This rise follows U.S. President Donald Trump's unexpected dialogues with Russia on ending the Ukraine conflict and subsequent administration remarks highlighting Europe's increased responsibility in security expenditures. This expectation of higher defence spending via bond markets is exerting upward pressure on yields.

Market participants noted, with SEB's Jussi Hiljanen commenting that both political and market actors are acknowledging the necessity of increased defence budgets and additional borrowing. Meanwhile, European yield spreads are narrowing, with Germany's two-year yield slightly up, signaling potential European cooperation in borrowing under Trump's moderated tariff stance.

(With inputs from agencies.)