Euro Zone Bond Yields Surge Amid Debt Rule Shake-up

Euro zone bond yields increased significantly on Friday following a deal by Germany's chancellor-designate Friedrich Merz with Green and Social Democrat parties to modify debt regulations. Germany's 10-year bond yield reached 2.932%, nearing a 17-month high, as plans for increased borrowing spurred market reactions.

Euro zone bond yields surged on Friday as Germany's future chancellor, Friedrich Merz, reached an agreement with the Green and Social Democrat parties to revise the country's debt rules, aiming to significantly increase state spending. This development pushed Germany's 10-year bond yield to 2.932%, close to a recent 17-month high.

According to sources, a compromise on the debt deal is under examination by the finance ministry ahead of a parliamentary vote next week. This led to a rise in yields as investors reacted to the potential for increased borrowing through bond markets, with Germany's 30-year bond yield climbing to its highest since 2011.

Analysts anticipate further increases, projecting a 10-year yield of 3.25% by year-end. Meanwhile, other euro zone yields rose, and the yield spread between U.S. 10-year Treasuries and German Bunds fell amid market uncertainties.

(With inputs from agencies.)