Germany's spending shock of up to 500 billion euros triggers a global bond market sell-off intensifying

According to the Zhitong Finance APP, on Thursday, global financial markets remain in a phase of severe adjustment. Previously, U.S. President Donald Trump’s significant adjustments to transatlantic relations prompted Germany to experience a massive change in defense and infrastructure spending of up to €500 billion. The European Central Bank (ECB) is also intensively preparing for another interest rate cut. Typically, this would attract the attention of traders. The global bond market sell-off continues unabated, and the inability to curb this downward trend remains a core issue after the yield on Germany's 10-year government bonds experienced its largest increase since the 1990s, being one of the main drivers of global borrowing costs. The yield on 10-year German government bonds rose by 10 basis points to 2.88%, reaching as high as 2.929% on Wednesday. The euro exchange rate remains at a four-month high, and European stock markets have also seen a pullback after rising 10% this year. Jim Reid of Deutsche Bank stated, “In fact, I still believe that global investors have not fully understood and digested this significant news from Germany.” He estimated that the surge in German government bond yields on Wednesday was the largest change since German reunification. “This is an extremely significant fundamental shift, and currently, only those agile hot money and flexible investors have responded.” Its global impact became evident overnight. As another key driver of global borrowing costs, the yield on Japan's 10-year government bonds is nearing a nearly 16-year high. Despite rising expectations for further interest rate cuts from the Federal Reserve, the yield on U.S. 10-year government bonds has also risen for the third consecutive day. After the U.S. imposed a 25% tariff on imports from Mexico and Canada and new tariffs on Chinese goods on Tuesday, the global trade war remains a focal point, exacerbating market concerns about economic growth. However, on Wednesday, the White House stated that as long as Mexican and Canadian automakers comply with existing free trade rules, President Trump would exempt them from tariffs for one month. This drove a significant rise in the U.S. stock market and boosted Asian markets. The MSCI Asia-Pacific stock index, excluding Japan, rose by 1.25%, and the Tokyo Nikkei index closed up 0.8%. The China CSI 300 index rose by 1.4%, and the Hong Kong Hang Seng Index soared over 3%, reaching its highest level in three years. The Hang Seng Index has risen 20% year-to-date, making it the best-performing major stock index globally. ECB's Response The upcoming interest rate cut by the European Central Bank is drawing attention, especially after Germany and other European countries have massively restructured their military spending. The euro exchange rate stabilized slightly above $1.08, close to the four-month high it reached during the Asian morning session. The euro is expected to rise over 4% this week, marking the strongest single-week performance since March 2009. Julian Barford, Chief Market Strategist at Barclays Private Bank, stated, “Given the current situation, this meeting of the ECB could be very interesting.” Barford pointed out that the ECB will be approaching the so-called “neutral” interest rate level after recent interest rate cuts, and “Christine Lagarde will certainly be asked how the ECB plans to respond” to the increase in defense spending across Europe In terms of commodities, gold prices remain stable at $2,921.39 per ounce, with traders awaiting Friday's U.S. non-farm payroll report for clues on the Federal Reserve's policy direction. In the first few trading days of this week, oil prices continued to decline due to a larger-than-expected increase in U.S. crude oil inventories, plans by the Organization of the Petroleum Exporting Countries (OPEC) and its allies to increase production, and the U.S. imposing tariffs on key oil supplies. Now, oil prices are attempting to rebound. Brent crude oil futures prices hover near the three-year low reached on Wednesday