European bonds slipped and shares in defense companies rallied on the likelihood of greater military spending, which could force governments to step up borrowing in the coming years.
Prices for German, French and Italian bonds all declined, with 10-year bund yields — the benchmark borrowing rate for the euro area — reaching the highest in more than two weeks. While the bond pullback slowed, Europe's Stoxx 600 index extended gains to rise 0.5%, and a Goldman Sachs Group Inc. index of European defense shares topped a record high.
German defense firm Rheinmetall AG climbed as much as 11.3%, helping lift the Frankfurt bourse to a new peak. US markets are shut for a holiday.
The moves came as the US asked European nations to spell out what security guarantees and equipment they can offer Ukraine to ensure a lasting peace settlement. European officials say they are working on a major package to ramp up defense spending and some EU leaders are meeting in Paris to draw up their response.
“The goalposts are shifting, and the EU is realizing they can rely less and less on the US for protecting their borders. In lockstep, we're going to have to see European countries spend more on defense,” said Aneeka Gupta, head of macro research at Wisdomtree UK Ltd. “That does warrant a bit more caution on bonds.”
The developments have cemented the view that debt sales will need to increase as European nations shoulder the cost of a lasting peace deal between Ukraine and Russia. Upgrading defense and protecting Ukraine may cost Europe's major powers an additional $3.1 trillion over 10 years, according to Bloomberg Economics estimates. France's minister for European affairs, Benjamin Haddad, told Bloomberg TV ahead of the Paris meeting that joint EU bonds could be issued to fund defense, an option that's so far divided the bloc.
Meanwhile, European stocks are also getting a boost from China, a key export market. A meeting between President Xi Jinping and business figures including Alibaba Group Holding Ltd. co-founder Jack Ma raised hopes that a years-long crackdown on the private sector is ending.
In currency markets, Japan's yen strengthened against all its Group-of-10 peers after the economy grew faster than expected, bolstering expectations of interest-rate hikes from the Bank of Japan.
Bloomberg's dollar index steadied after two days of losses, while gold prices rose, adding to a seven-week run of gains.
European bonds fell and shares in defense companies rallied on the likelihood of greater military spending, which could force governments to step up borrowing in the coming years.
German, French and Italian bonds all declined, with 10-year bund yields — the benchmark borrowing rate for the euro area — reaching the highest in more than two weeks. Europe's Stoxx 600 index rose 0.2%, led by defense names, with Germany's Rheinmetall AG jumping 6%. A Goldman Sachs Group Inc. index of European defense shares topped a record high. US markets are shut for a holiday.
Officials are working on a major new package to ramp up defense spending and some EU leaders are planning to meet on Monday in Paris to start drawing up their response. The moves come as the US pushes for a quick end to the war in Ukraine and Vice President JD Vance attacked longstanding European allies at a security conference Friday.
“The goalposts are shifting, and the EU is realizing they can rely less and less on the US for protecting its borders. In lockstep, we're going to have to see European countries spend more on defense,” said Aneeka Gupta, head of macro research at Wisdomtree UK Ltd. “That does warrant a bit more caution on bonds.”
The developments have cemented the view that debt sales will need to increase as European nations shoulder the cost of a lasting peace deal between Ukraine and Russia. Upgrading defense and protecting Ukraine may cost Europe's major powers an additional $3.1 trillion over 10 years, according to Bloomberg Economics estimates.
European stocks are also buoyed by greater optimism over China, a key export market. Investors have been piling into technology shares, especially in China, amid optimism over DeepSeek's AI app. Monday's meeting between President Xi Jinping and business figures including e-commerce icon Jack Ma was also seen as a catalyst for gains.
Goldman Sachs Group Inc. strategists raised their MSCI China index target on optimism over the country's technological advancements. A gauge of Asian shares rose 0.4%, after earlier reaching the highest level since November.
In currency markets, Japan's yen strengthened against all its Group-of-10 peers after better-than-expected gross-domestic-product data bolstered expectations of interest-rate hikes from the Bank of Japan. Bloomberg's dollar index traded steady after two days of losses.
Some of the key events this week:
Presidents Day holiday in the US; bond and stock markets are closed, Monday
Australia rate decision, Tuesday
UK jobless claims, unemployment, Tuesday
Bank of England Governor Andrew Bailey speaks, Tuesday
Canada CPI, Tuesday
New Zealand rate decision, Wednesday
Indonesia rate decision, Wednesday
UK CPI, Wednesday
South Africa CPI, retail sales, Wednesday
US FOMC minutes, housing starts, Wednesday
Australia unemployment, Thursday
China loan prime rates, Thursday
Eurozone consumer confidence, Thursday
G-20 foreign ministers meet in South Africa, Thursday - Friday
Reserve Bank of Australia Governor Michele Bullock and officials testify to parliamentary committee, Friday
Japan CPI, Friday
Eurozone HCOB manufacturing & services PMI, Friday
UK S&P Global manufacturing & services PMI, Friday
US S&P Global manufacturing & services PMI, Friday
Bank of Canada Governor Tiff Macklem speaks, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 0.5% as of 3:14 p.m. London time
S&P 500 futures were little changed
Nasdaq 100 futures were little changed
Futures on the Dow Jones Industrial Average rose 0.1%
The MSCI Asia Pacific Index rose 0.6%
The MSCI Emerging Markets Index rose 0.5%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0482
The Japanese yen rose 0.6% to 151.44 per dollar
The offshore yuan was little changed at 7.2643 per dollar
The British pound was little changed at $1.2597
Cryptocurrencies
Bitcoin fell 0.6% to $96,636.65
Ether rose 4.8% to $2,817.01
Bonds
The yield on 10-year Treasuries was little changed at 4.48%
Germany's 10-year yield advanced five basis points to 2.48%
Britain's 10-year yield advanced two basis points to 4.52%
Commodities
Brent crude rose 0.2% to $74.92 a barrel
Spot gold rose 0.6% to $2,900.56 an ounce
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
