LONDON (Reuters) – German Chancellor-in-waiting Friedrich Merz reached an agreement with the Greens on Friday on a massive increase in state borrowing just days ahead of a parliamentary vote next week, Reuters reported, citing a source close to the negotiations.
German shares rose on the news, with the blue chip Dax index 1.5% higher on the day, while mid and small-cap stocks rose over 2%.
The euro also strengthened and was last up 0.5% at $1.0904,, while Germany’s 10-year bond yield, rose 7 basis points to 2.93%.
COMMENTS:
RICHARD MCGUIRE, HEAD OF RATES STRATEGY, RABOBANK:
“The deal had been anticipated as indicated by the violent selloff in bonds last week.”
“The additional upward impetus in yields is limited.”
“What would be interesting to see is if the 3% ceiling for Bund yield breaks before these plans come into fruition.”
“This is positive for Germany but there are questions marks on how quickly the plans can be delivered. The speed at which the funds can be deployed is questionable.”
LEE HARDMAN, SENIOR CURRENCY ANALYST, MUFG, LONDON:
“Short term it’s another positive driver for the euro, but we’d be wary about getting too excited about the news, the market was already expecting it to come before next Tuesday.”
“It takes the risk of a disappointment off the table, and allows the euro to drift a bit higher.”
(Reporting by the finance and markets team, compliled by Alun John; editing by Dhara Ranasinghe)
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