LONDON, March 5 (Reuters) - Germany's 10-year borrowing costs could surge to their highest levels in more than 16 years after politicians reached a historic deal on Tuesday to overhaul the country's debt brake, Goldman Sachs has said.
Friedrich Merz's conservatives and the Social Democrats agreed to create a 500-billion euro infrastructure fund and rewrite borrowing rules as they seek to revive a struggling economy and spend more on defence.
The implied extra borrowing via debt markets caused bond prices to tumble and yields to spike on Wednesday. Germany's 10-year borrowing costs were set for their biggest one-day rise since the late 1990s on Wednesday, up 26 basis points, taking them to 2.735% .
The extra borrowing and spending "would imply a 50-120 basis point increase in 10-year Bund yields over the medium term relative to our current forecasts of 2.5%, pointing to a potential range for Bunds of 3.0-3.75%," analysts at Goldman said in a note.
That would be the highest level since late 2008, when bond yields began to fall as central banks tackled the global financial crisis.
Reporting by Harry Robertson; Editing by Amanda Cooper
Source: Reuters