Goldman, HSBC Flag Risks to German Bonds as Spending Surge Looms

Goldman Sachs is warning on German government bonds, forecasting 10-year Bund yields to reach 2.80% by the end of 2025 and 3.25% in 2026. This outlook is driven by Germany's increased spending, which is expected to boost debt supply and support economic growth, suggesting a significant repricing despite sustained demand for safe, triple-A rated securities.

Analysis

Major investment banks, including Goldman Sachs and HSBC, are issuing warnings on the outlook for German government bonds, signaling a bearish shift. The core driver of this view is Germany's anticipated spending increase, which is expected to fuel both economic growth and a substantial rise in sovereign debt supply. Goldman Sachs projects a significant repricing in the bond market, forecasting the 10-year Bund yield to reach 2.80% by the end of 2025 and 3.25% by 2026. This upward pressure on yields has thus far been partially counteracted by strong, persistent demand for Germany's triple-A rated debt, which serves as a safe-haven asset during market volatility. The developing situation presents a clear tension between deteriorating supply/demand fundamentals and the bonds' safe-haven status.

Key Decisions for Investors

• Investors holding long positions in German government bonds face a heightened risk of capital depreciation and should consider reducing duration or implementing hedges against rising yields.
• Monitor upcoming German fiscal announcements and debt auction calendars, as the size and absorption of new supply will be a critical catalyst for the repricing trajectory.
• The forecast for rising yields suggests shorting German Bunds could be a viable strategy, particularly if safe-haven demand wanes due to stabilizing market conditions.