At Any Rate Global Rates: European rates markets roundup: German fiscal, NATO meeting, carry themes, de-dollarisation flows and UK rates
Jun 27, 2025
In a deep dive, Aditya Chordia, a European Rates Strategist at J.P. Morgan, shares insights on the latest German fiscal policies and the NATO meetings' influence on European rates. He discusses the projected government deficits and the anticipated surge in bond issuance. The conversation also touches on de-dollarization trends affecting currency demand, alongside cautious investor strategies in Italy's rates market. Finally, he explores shifts toward European bonds, revealing implications for the UK yield curve in a transforming global economic landscape.
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German Fiscal Deficit and Issuance Outlook
- Germany's 2025 federal deficit is expected to be around 3.1% GDP, slightly higher than anticipated.
- Increased issuance primarily comes from bond reintroductions and higher T-bill allocations, but execution risks may limit full delivery.
NATO Defense Spending Impact
- NATO agreed to raise defense spending target to 5% of GDP by 2035, with most increases back-loaded.
- Most EU countries will face fiscal constraints, so near-term defense spending rises will be limited mainly outside Germany.
Carry Strategies in EMU Spreads
- Avoid chasing carry in Italian spreads now due to very tight valuations and low returns.
- Prefer Spain and EU bonds and wait for material widening to re-enter Italian carry positions.