Germany aims to allow higher defence spending and will propose the creation of a €500 billion (US$533 billion) infrastructure fund, the leaders of the conservatives and the Social Democrats (SPD) said on Tuesday.

Germany’s 10-year bond yield, the euro area’s benchmark, rose 21 basis points to 2.70%.

“This proposal could ultimately mean even more new debt than the earlier media reports about a combined €900 billion package for defence and investment,” said Christoph Rieger, rate strategist at Commerzbank, arguing that the “military component is in principle unlimited”.

“Moreover, the measures could also give future governments more fiscal space beyond military and investment in the upcoming budgets,” he added.

Germany’s 30-year yields rose almost 25 bps to 3.07% in their biggest daily climb since October 1998.

Money markets reduced their bets on European Central Bank rate cuts, pricing in a depo rate of 2% in December from 1.92% late Tuesday.

Germany’s two-year yield, more sensitive to European Central Bank policy rates, rose 13 bps to 2.14%.

The spread between the risk-free 10-year overnight index swap and Bund yields dropped to -22 bps, its lowest level since February 2011.