BlackRock Favors UK Bonds as German Fiscal Expansion Raises Risks

German government bonds are becoming less appealing due to expanding fiscal policies and increased borrowing expectations. On June 27, Alex Brazier, global head of investments and portfolio solutions at BlackRock Inc., spoke to Bloomberg TV. “Given the scale of the fiscal expansion in Germany… actually, bunds don’t look that attractive,” he said. Despite some capital returning from the US, Brazier noted Germany’s fiscal path weakens the bonds’ overall appeal. As a result, BlackRock is currently more favorable toward UK government bonds, which are seen as more stable. Germany’s borrowing strategy is eroding long-term investor confidence.

Investors Shift Capital Amid German Fiscal Uncertainty

While caution remains, some investors are moving capital back from the US to European markets. Brazier said exchange-traded fund flows and survey results show renewed interest in European investment. “When we survey investors, they’re still looking at repatriating capital towards Europe,” he explained. US-based investors are reportedly seeing improved opportunities across the region. However, interest in German government bonds remains restrained due to fiscal concerns. Rising bond yields and large-scale borrowing contribute to investor hesitation. UK bonds, by contrast, are receiving more attention for their relatively steadier fiscal environment.

Political Stability Concerns Shift Focus From US to Europe

Earlier in 2025, German government bonds were seen as a safer option during US political volatility. Uncertainty linked to former President Trump’s policies caused investors to seek stability in European debt. But now, attention is turning toward Germany’s own budgetary risks. The 30-year bond yield increased 11 basis points this week alone, hitting 3.10%. This marked the sharpest weekly gain since March and a one-month high. These moves reflect growing market concern about Germany’s long-term fiscal direction and its potential impact on bond performance.

German Government’s 2025 Budget Sparks Investor Reassessment

Germany’s 2025 budget has become central to bond market reactions in recent weeks. Chancellor Friedrich Merz’s cabinet approved a plan with €82 billion in new borrowing this year. The plan stretches through 2029 and includes a total projected increase of €500 billion in debt. According to the budget documents, annual borrowing will exceed €126 billion by the final year. These numbers are now key indicators for investors weighing risk in German government bonds. The fiscal path outlined suggests increasing pressure on yields, especially for long-dated maturities.

Defense spending is a major driver behind the expanded budget outlined by the German government. Germany aims to allocate at least 3.5% of its GDP to military spending, up from 2%. This aligns with recent NATO targets and suggestions by US President Donald Trump for a 5% goal. Member nations are expected to discuss these spending targets at a NATO summit in The Hague. The summit begins Tuesday and may bring more clarity on defense funding obligations. This component of the budget adds further strain on Germany’s long-term financial outlook.

Bond Issuance May Drive Yield Volatility

Attention is also focused on bond sales by Germany’s Finance Agency. The agency published updated figures for third-quarter bond issuance on June 24. The total exceeded earlier projections made in December. The increase reflects the wider fiscal scope introduced in the German government’s 2025 budget. More supply could raise pressure on yields, especially for long-term bonds. These developments could continue shifting investor interest toward UK government bonds with more predictable fiscal profiles.