Global financial markets witnessed a phase of sharp readjustment on Thursday, following U.S. President Donald Trump’s shakeup of transatlantic relations. His actions triggered a massive half-a-trillion-euro shift in German defense and infrastructure spending, sending shockwaves through the markets.
The European Central Bank (ECB) was preparing to cut interest rates again—an event that would typically dominate traders’ focus. However, with a global bond market selloff still in full swing a day after the 10-year German Bund yield – a major driver of worldwide borrowing costs – saw its biggest rise since the 1990s, that remained core.
Bund yields climbed another 10 basis points to 2.88%, after reaching as high as 2.929% on Wednesday. Meanwhile, the euro held at a four-month high, and European stocks paused rallying 10% this year.
“The reality is that I still don’t think the enormity of the (German) news has got close to being fully comprehended and digested by global investors yet,” who noted that Wednesday’s Bund yield surge was the most significant move since German reunification. “This is a seismic shift of epic proportions, and so far, only fast-moving investors have reacted.”
The market reaction was evident across the world.
Japan’s 10-year government bond yield—another key benchmark for global borrowing costs—hit a near 16-year high, while U.S. 10-year Treasury yields rose for the third consecutive day, despite increasing bets on further Federal Reserve rate cuts.
International trade tensions also were in focus after the U.S. imposed 25% tariffs on imports from its neighbors Mexico and Canada on Tuesday, alongside fresh duties on Chinese goods. The move raised concerns about economic growth. However, on Wednesday, the White House announced that Mexican and Canadian automakers would be exempt from these tariffs for one month if they complied with existing free trade agreements.
