German benchmark borrowing costs climbed to their highest level since March after a senior European Central Bank (ECB) executive board member signaled acceptance of market bets on future rate hikes. In a recent interview, the official expressed comfort with investors pricing in another ECB rate increase.

Following these hawkish remarks, the yield on Germany’s 10-year benchmark bond—often seen as a bellwether for eurozone debt—rose 3 basis points to 2.83%, inching closer to the psychologically significant 3% threshold. Meanwhile, longer-dated bonds, such as the 20-year maturity, hit their highest levels since 2011. In contrast, equivalent U.S. and U.K. yields remained near year-to-date lows, well below their earlier peaks.

Isabel Schnabel, the ECB executive board member, became the first official to firmly suggest that the central bank’s benchmark rate had bottomed after a cumulative 200-basis-point easing cycle. Money markets swiftly reinforced the view that the ECB’s dovish phase had ended, with traders now pricing in just 3 basis points of additional cuts by mid-2025—far below last week’s 10-basis-point expectation.

"German long-term yields are approaching critical levels, amplified by Schnabel’s comments this morning," noted Hauke Siemssen, a senior strategist at Commerzbank AG, in a client report.

German bonds have underperformed developed-market peers since March, when the government unveiled a historic spending plan to funnel hundreds of billions into defense and infrastructure, triggering the steepest long-dated bond selloff in 35 years. Though the decline moderated in subsequent months, concerns over rising term premiums resurfaced after lawmakers approved a 2026 budget featuring €98 billion ($114 billion) in net new federal borrowing.

Additionally, Germany’s controversial pension reform last week is expected to further strain public finances. "The cyclically adjusted budget deficit is set to widen significantly, supporting our view that German yields will rise to 3% and beyond in coming quarters," said George Cole, Goldman Sachs’ European market strategist, in a pre-vote client note.