The surge in German bond yields is due to repricing of rate hike expectations, with almost no change in term premium.

⑴ Generali Investments strategist Florian Spaete pointed out that the recent rise in German government bond yields has been almost entirely driven by the repricing of European Central Bank rate expectations, rather than reflecting increased demand for extra risk compensation on long-term bonds. ⑵ The 10-year German government bond yield rose by approximately 50 basis points in the third quarter, reaching a 15-year high. However, over the same period, the term premium was only about 0.5%, which remains low by historical standards and shows very limited change. ⑶ The market has fully priced in an expected rate hike of about 25 basis points in September, and anticipates nearly two more hikes before the summer of 2027. The hawkish adjustment to the policy rate path has become the main driver behind rising yields. ⑷ On Monday, Germany issued approximately 1.8 billion euros in 12-month Treasury bills, with an average winning yield of about 2.48% and a bid-to-cover ratio of around 1.6, higher than the previous 1.4, indicating a slight rebound in demand. ⑸ Another batch of about 2.4 billion euros in 12-month Treasury bills had an average winning yield of about 2.72%, up from the previous 2.65%, and a bid-to-cover ratio of about 1.8, lower than the prior 2.5, signaling a cooling of demand for certain issues.