German Bund Yield Hitting 4% Is Feasible, Aviva Investors Says

(Bloomberg) — Germany’s 10-year bond yield rising to 4% is “entirely feasible” as a reset in the country’s borrowing costs plays out, according to Aviva Investors.

The rate surged to nearly 3% in recent weeks as Germany’s incoming chancellor spearheaded a huge spending package that is expected to lead to billions of euros in extra bond sales. Vasileios Gkionakis, senior economist and strategist at Aviva Investors, says yields are likely to keep rising as the fiscal measures boost economic growth.

“A range of 3.5% to 4% is entirely feasible given the announcements and a realistic trajectory for growth, budget balance, inflation and monetary policy,” Gkionakis wrote in a note, laying out the link between nominal GDP growth and long-term yields. He didn’t give a time frame for the forecast.

Bund yields hitting 4% would mark the highest level since the global financial crisis in 2008. Gkionakis’ call follows a similar projection by BNP Paribas SA strategist Sam Lynton-Brown. He said this week that yields may reach as high as 4% by 2028 amid potential rate hikes by the European Central Bank from the second half of next year.

Still, the region faces a lot of uncertainty around the magnitude of US tariffs that may change the trajectory for bond yields and the euro. President Donald Trump said over the weekend that the US would be imposing both broad “reciprocal tariffs” and additional sector-specific tariffs against a range of countries on April 2.

Severe and permanent tariffs would likely cap a further rise in yields, particularly if the ECB is forced to cut interest rates to stimulate growth, Gkionakis said. ECB President Christine Lagarde said earlier that policymakers are unable to make firm commitments on rates due to elevated unpredictability over trade.

“Even in this doomsday scenario, however, I would struggle to see bund yields lower than current levels in around a year’s time,” Gkionakis added.

The strategist is bullish on the euro and sees an increase to $1.15 before year-end if severe US tariffs can be avoided. It was trading around $1.0850 on Thursday.

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