FX.co ★ German Bund Yields Climb as Trade Tensions Ease

Germany's 10-year Bund yield rose to approximately 2.65%, marking its highest point since May 23. This rise comes as trade tensions eased following the announcement that the U.S. had proposed a deal to the European Union that maintains a 10% baseline tariff, while allowing exemptions for certain sectors, such as aircraft and spirits. However, there was no indication from Washington that extensions for exemptions would include politically sensitive sectors like automotive, steel, aluminum, or pharmaceuticals, which the EU had requested. The EU is working to finalize a preliminary agreement this week to secure the 10% tariff beyond the August 1 deadline, with further negotiations for a permanent agreement ongoing. On the economic side, both Germany's exports and imports declined more than anticipated in May, although industrial production showed a surprising increase. Bundesbank President Joachim Nagel cautioned that U.S. tariffs might impact Germany most severely between 2025 and 2026. Nonetheless, he anticipates a recovery starting in 2026, aided by government spending and reforms to the debt brake, potentially raising growth by 0.75 percentage points by 2027.