Dark clouds hang over the financial district as the spread of the coronavirus disease continues in Frankfurt, Germany, March 16, 2021. REUTERS/Kai Pfaffenbach
The implications could range from more environment-focused spending to greater euro zone cohesion. German bond yields have risen since the Greens nominated their first candidate for chancellor because of increased election uncertainty and a perception that increased fiscal spending could be on the way.
Scaled to the U.S. economy, the plans equate to $3 trillion of spending or 1.5% of 2019 GDP, according to Citi, comparable to U.S. President Joe Biden's agenda. The risks are reflected in 10-year Italian bond yields, which are more than 100 basis points above German equivalents, ING Bank says. ING predicts that this gap will narrow to 75 bps over the coming months .More bond issuance is inevitable to fund the proposed spending. That would shift the "paradigm" that has depressed German bond yields for years, ING says.
By adding to the supply of highly-rated bonds, "all the scares about scarcity...would reduce quite a lot", said Annalisa Piazza, fixed income research analyst at MFS Investment Management.4/ GREEN REVOLUTION