Germany's bonds stabilized Friday after experiencing their most significant weekly decline since 1990. The yield on 10-year securities ended Friday at 2.84%, unchanged after reaching the highest level since 2023 on Thursday.

The 10-year bond yield rose over 40 basis points this week—the largest increase since shortly after the Berlin Wall fell. This sharp movement has prompted some bond strategists to adopt a more positive outlook on German debt.

"We are in the camp of consolidation and a modest move lower in bund yields," said Mohit Kumar, chief strategist at Jefferies International. Kumar expects 10-year yields to return toward 2.75%, adding that "fiscal expectations are already in the price in rates."

The bond market reaction comes as German election winner Friedrich Merz's conservatives and the Social Democrats work to form a coalition government. The parties plan to revise Germany's borrowing limits next week, aiming to boost military spending and revive growth in Europe's largest economy after two years of contraction.

The decline in Germany's bonds, traditionally considered Europe's safest, triggered a selloff across global debt markets after the nation announced a major shift toward increased public spending. Investors have long wanted more triple-A rated German securities but now seek higher returns to offset the expected rise in borrowing.

Some analysts suggest the German yield could potentially reach 3%, a level seen only once since 2011, which might represent a buying opportunity. "Markets will likely settle down and re-evaluate," said Brian Mangwiro, a portfolio manager at Barings, who finds "bunds are certainly attractive again at close to 3%."

Several factors are driving caution among investors:

• Uncertainty around European growth prospects
• Questions about inflation outlook
• Potential changes to EU fiscal rules
• Lingering concerns about US trade policy

Toronto-Dominion Bank believes the yield increase was justified given Germany's unprecedented change in fiscal stance but now recommends a tactical long position on the debt. TD rates strategist Pooja Kumra predicts a range of 2.4%-2.7% in coming months, noting that "the negative impulse from tariffs will have a more immediate impact than from the longer-term overhaul of the German economy."