Germany's Relative Strength to Persist: Bond Markets

This report examines the resilience of the German public sector bond market, confirming UBS's stable credit view on Germany's AAA rating despite structural challenges. It details investment opportunities across the sovereign, 16 federal states, and major promotional banks like KfW.

Key Takeaways

• 1.Germany is expected to maintain its AAA credit ratings from all three major agencies (Moody's, S&P, and Fitch) despite structural headwinds and rising debt.
• 2.German debt affordability remains superior to peers, with net cost of debt projected at only 3% of revenues by 2030, compared to over 14% for the US.
• 3.German federal state bonds and promotional banks (such as KfW and Rentenbank) offer attractive liquid alternatives to scarce German Bunds, often with higher yields.

Table of Contents

• Section 1: Germany
• Economic backdrop and competitiveness
• Demographics, labor markets, and costs
• Fiscal policy: from prudence to expansion
• Energy transition, geopolitics, and defense
• Political landscape and institutional strength
• Debt metrics and affordability
• Summary
• Section 2: Federal states
• Fiscal framework, budgetary surveillance, and the 2025 debt-brake reform
• Default risk and ratings
• Section 3: Promotional banks and bank wind-down entities

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