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(Bloomberg) — Germany’s Finance Agency confirmed it will sell €92.5 billion ($100 billion) in federal government debt in the second quarter, and announced plans to reintroduce sales of seven-year bonds in the second half of the year.
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The Frankfurt-based agency will issue €62.5 billion in bonds and €30 billion in bills, it said Monday in an emailed statement, in line with an issuance agenda published in December. It also plans to sell a yet-to-be-determined volume of green bonds in three separate auctions.
Borrowing costs for the government in Berlin have jumped since conservative Chancellor-in-waiting Friedrich Merz announced a massive boost in deficit spending on defense and infrastructure this month.
The measures secured final approval from lawmakers in the upper house of parliament on Friday and attention has turned to exactly how and where the hundreds of billions of euros earmarked will be spent.
The increase in supply of German government debt is expected to take time to feed into issuance plans and Tammo Diemer, a Finance Agency managing director, said Monday he doesn’t expect significant changes this year.
The agency does, however, intend to reopen the seven-year bond segment in the second half of 2025 to help increase supply flexibility, Diemer told reporters on a conference call.
Over time, the jump in German supply is likely to lift the natural rate of interest, which could give more hawkish members of the European Central Bank’s governing council another reason to push for an end to the easing cycle, according to Bloomberg economists Martin Ademmer and Jamie Rush.
“To the extent that higher sovereign-bond yields are accompanied by higher interest rates on housing loans and corporate credits, this could dampen the gradual recovery of private housing and business investment we expect over the medium run,” they wrote in a March 21 note.
“It will not, in our view, offset all of the boost to growth in Germany or the euro area,” they added. “In the long run we think a sustained increase in spending could add 2% or more to the level of potential GDP.”
–With assistance from James Hirai and Greg Ritchie.
(Updates with detail on seven-year bonds starting in first paragraph.)
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