As Germany’s DAX index reached another all-time high, the bond market is feeling the pain. The yield on Germany 10-year government bond surged more than 30 basis points yesterday, bringing the one-week increase to 47 basis points—both marking the largest jumps since German unification. The panic in the bond market was triggered by defense spending plans from both Germany and the European Union. 

In recent weeks, Trump’s decisions regarding Ukraine and tariffs have sown distrust among U.S. allies, ultimately pushing European countries to unite in strengthening their own defense efforts. 

So far, the DAX index has ignored the threats posed by tariffs and rising yields, instead enjoying a strong rally while the U.S. stock market struggles. Lower valuations, along with inflows of capital fleeing bonds and U.S. equities, have contributed to this surge. However, higher yields will likely exert downward pressure on German stocks in the long run. 

(Gold -1D Chart) 

The DAX has reached the upper line of the logarithmic trend channel that has been ongoing since the last quarter of 2022. The two-and-a-half-year uptrend channel has been holding up perfectly so far. If this trend channel continues as it has, the DAX might experience at least a short-term correction from the 23,425 resistance level. 

The first downside target is the 21-day moving average at 22,485, but if bond yield pressure persists, the decline could extend toward the 55-day moving average in the coming weeks. 

Despite this, short-term upward pressure remains, and bears should use tight stop losses. Market surges sometimes trigger FOMO among participants, leading to extended upward moves before a correction takes place.