The yield on Germany’s benchmark government bond crossed the 3% mark on Wednesday for the first time in more than a decade, as investors demanded ever-higher interest rates to buy long-maturity bonds, Bloomberg reported. , quoted by Agerpres.

The yield on 10-year German bonds, commonly known as the Bund, rose four basis points to 3.01% on Wednesday. During September, the yield on this type of bond increased by almost 40 basis points, the largest monthly jump this year.

The increase in the cost of borrowing for Germany is taking place against the background of sharp changes in global bond markets.

After turning to long-term bonds to hedge against a possible economic downturn, traders are now bracing for a prolonged period of tight monetary policy, as well as other potential headwinds that will increase bond supply.

Also, Christine Lagarde, president of the European Central Bank (ECB), announced in late September that interest rates would remain high until inflation returned to the 2% target, even if the economy continued to grow. through a difficult period.

“Our future decisions will ensure that the key ECB interest rates will be set at fairly restrictive levels for as long as necessary,” Christine Lagarde told members of the European Parliament’s economic and monetary affairs committee.

“We remain determined to ensure that inflation returns in an orderly manner to our medium-term objective of 2%,” Lagarde added, largely echoing a statement issued by the ECB at the end of this month’s monetary policy meeting, when the “guardians of the euro” decided 10- e consecutive increase in the cost of credit to a historical maximum of 4%.

Problems for the German economy

In parallel, the ECB may accelerate the pace of deleveraging from its balance sheet, while government bond issuance is expected to remain high to help governments finance spending as the economy begins to slow.

For Germany, adding to all these concerns is the fact that its economy went into recession in early 2023 and has not been able to return to surplus since then.

“Under the weight of massive inflation, the German consumer has fallen to its knees, dragging the entire economy down with it,” Andreas Scheuerle, an analyst at DekaBank, said in May after the release of data that suggested the country was entering recession.

Germany is heading for a prolonged recession this year, becoming the only major European economy to record an economic downturn in 2023, according to new forecasts from the European Commission in September.

Economic activity in Europe’s biggest economy will fall by 0.4% this year, 0.6 percentage points lower than the estimate made in May, according to the Commission, which published new forecasts on Monday.

The institution also lowered its expectations for German growth in 2024 from 1.4% to 1.1%.