Rates Spark: National First!

2025-02-27 04:20:00 ET

Summary

• Recent headlines about new tariff threats add a bullish bias to rates, while clarity on defence funding and debt brake reforms is crucial for Bund spreads.
• With time running out in Germany to leverage the old majorities before the new Bundestag convenes on March 25, the headlines are providing little additional clarity. A €200bn defence special fund still looks like the more probable avenue for now.
• As markets focus on the ECB, the first inflation readings today could counterbalance recent hawkish comments.

By Benjamin Schroeder , Michiel Tukker

National funding could be the fastest path to European defence spending

With time running out in Germany to leverage the old majorities before the new Bundestag convenes on March 25, the headlines are providing little additional clarity. A €200bn defence special fund still looks like the more probable avenue for now, as was indicated by the current caretaker finance minister at the sidelines of the G20 gathering in Cape Town. If decided, a fund could potentially lessen the pressure for a quick reform of the debt brake, which in turn could alleviate some of the market's supply fears, but at the same time dampen any hopes that bigger stimulus from Germany could pull the eurozone out of its economic rut....

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