The sell-off came after Germany’s move this week to increase military and infrastructure spending.

Political parties in talks to form a new government plan to pay for this by loosening Germany’s fiscal rules, raising the prospect of a big increase in debt.

In response, longer term German bonds saw their biggest sell-off in years on Wednesday.

This pushed borrowing costs – as measured by the yields on the Germany’s 10-year bonds – up by biggest daily amount since May 1997.

On Thursday, German borrowing costs – as measured by the yields on the country’s bonds – continued to rise.

Yields continued to rise on Thursday, hitting 2.929% at one point – the highest level since October 2023.

The increase has had a knock-on effect on other countries, with UK borrowing costs also increasing.

UK government borrowing costs have already risen due to concerns about persistent inflation and interest rates not coming down as quickly as previously thought.

However, Lindsay James, an investment strategist at Quilters, said the market was still expecting the Bank of England to make two further rate cuts in 2025, “with recent inflation data reasonably encouraging”.