German budget draft signals fiscal pressure as bond markets brace for higher long-end yields

With the German government preparing a €555 billion spending plan, economists warn that structural deficits could push long-term Bund yields higher, reinforcing a global shift toward short-duration fixed income.

By Handelsavisen Newsroom 2026-07-07 08:10 UTC Read on handelsavisen.no →

The German federal government is set to present its draft budget for 2027 and medium-term financial planning to the cabinet on Monday, outlining projected expenditures of €555 billion.

The submission comes amid intensifying debate over fiscal sustainability in Europe’s largest economy, with economists warning that persistent spending pressures may force a repricing of long-dated German government bonds.

Feld, a prominent German economist, has issued a stark warning that investors should prepare for higher interest rates on longer-maturity Bundesanleihen.

His commentary underscores growing concerns that the government’s fiscal trajectory is incompatible with stable long-term borrowing costs, particularly as the country navigates post-pandemic recovery and energy transition investments.

The timing of the budget draft aligns with broader shifts in global fixed-income markets.

Fixed-income investors have increasingly rotated into short-duration bond funds as the prospect of higher-for-longer interest rates gains traction.