Analysts think the agreement could spur additional spending in excess of $1.3 trillion, or about a quarter of the size of Germany’s economy. The German government is traditionally renowned for its relative austerity, but an effort to revive a stagnating economy—and boost military spending as President Trump appears to unwind America’s commitments to Ukraine and European security—prompted German 10-year yields to rise more than 30 percentage points, their biggest one-day move in 28 years.  

That selloff occurred because markets hadn’t anticipated such a massive boost in the supply of government debt, said Matt Sheridan, lead portfolio manager for income strategies at AllianceBernstein. Without a corresponding increase in demand, prices of existing bonds fall. When a bond’s market price drops, its yield—which represents the asset’s annual return—must move higher.

“That’s the big part of the story,” Sheridan said, “but bond yields can also react [off] the back of changing expectations for central bank rate cuts.”

The Federal Reserve forced traders to trim their expectations for interest-rate reductions late last year, and a similar dynamic is playing out in Europe after the ECB struck a similarly hawkish tone on monetary policy. When a central bank hikes interest rates, demand for existing bonds decreases.

“Once you start to take away potential rate cuts from the market, then owning five- or 10-year bonds just [doesn’t] become as attractive,” Sheridan said, “because you’re not going to get the support from the central bank being as aggressive as the market priced in yesterday.”

And when yields soar in European nations, he added, they tend to then rise everywhere, at least when it comes to developed economies. If investors decide to move capital from Japan to Germany to take advantage of higher yields in the latter, for instance, the price of Japanese bonds decreases—which, of course, causes their yields to move higher.

Treasuries have performed better than most of their peers in the sovereign bond market, but U.S. debt has not emerged unscathed. The 10-year yield, a benchmark for rates on mortgages and other common loans throughout the economy, briefly ticked above the 4.30% mark on Thursday, up from a 2025 low of 4.17% on Tuesday.

Donald Trump’s fixation on tariffs, meanwhile, also looms large. If a global trade war causes inflation, that will likely prompt rate hikes from the Fed and other central banks, weighing on demand for bonds and pushing yields higher. Conversely, if higher prices on imports and decreased global trade slows growth, Fed rate cuts, and therefore higher bond prices, could result.

The jury is still very much out on whether either scenario—or both outcomes—will occur. Since mid-January, the 10-Treasury yield has fallen roughly 50 basis points.

“It looks like the bond market has decided to bypass short-term inflation concerns and focus on the long-term prospects,” Kathy Jones, chief fixed income strategist at Charles Schwab, wrote in a note Wednesday. “As a result, the yield curve has inverted again with the Fed funds rate higher than yields for all maturities.”

It’s not all doom and gloom for fixed-income investors going forward, Sheridan said. Given the market’s heightened volatility, though, it might be a good idea to stay out of 20- to 30-year bonds.

“High-quality bonds are attractive, just yield curve selection is important,” he said. “Remaining disciplined and remaining a little bit more liquid in these markets makes sense.”

Stock moves are what typically grab the headlines. These days, however, bonds are far from boring.