(Dec 18): Germany will increase federal debt sales by a fifth next year to a record €512 billion to fund a spending splurge aimed at fixing its crumbling infrastructure and modernising its armed forces.
The country’s Frankfurt-based finance agency, which manages government debt, plans to sell about €318 billion in securities on the capital markets through auctions and €176 billion via the money market, according to a statement published on Thursday. Green bonds with a volume of between €16 billion and €19 billion will also be issued.
German bonds held an advance after the announcement. Ten-year yields have risen nearly 50 basis points (bps) this year, partly as a result of anticipated extra spending.
Chancellor Friedrich Merz’s government is trying to revive Europe’s biggest economy, which has struggled to grow since the pandemic. His government has pledged to deploy a €500 billion infrastructure fund on the country over the coming decade.
Merz’s coalition, formed of the conservative CDU/CSU bloc and Finance Minister Lars Klingbeil’s Social Democrats, is also ramping up investment in Germany’s long-neglected armed forces to reflect Europe’s evolving security concerns after Russia’s attack on Ukraine.
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Just on Wednesday, lawmakers in Berlin approved a defense splurge of roughly €50 billion for armoured vehicles, air-defence missiles and satellites.
The total issuance volume is up from €425 billion in 2025, and exceeds the previous peak of around €500 billion in 2023. The agency — known as DFA — said it will sell 20-year bonds for the first time and plans to carry out a total of four syndicated sales via banks in the coming year.
The launch of a 20-year bond, which the DFA said reflects “demand”, likely reflects the nation’s elevated bond issuance plans over the coming years. The nation re-introduced seven-year sales last year to increase the range of tenures it can raise money from capital markets.
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It also comes amid a broad steepening of European yield curves, meaning longer-term borrowing rates are climbing relative to shorter ones. Germany’s premium to borrow at 30 years over five years has risen almost 60bps this year.
That’s amid waning demand for long bonds, with a regulatory overhaul of Dutch pension funds — traditionally a major buyer — cited as further denting demand in the coming years. The Netherlands itself lowered its maturity target for debt sales last week, while Austria has also said it has room to shift its sales towards shorter tenures.
The German government can afford to increase borrowing as its debt as a proportion of gross domestic product is well under 100%, and by far the lowest ratio in the Group of Seven advanced economies.
Still, the economy contracted in recent years and 2025 growth was probably just 0.2%. While the government expects a rebound in 2026, key German industries like automotive and chemicals face significant headwinds amid trade tensions with both the US and China.
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