By Stefano Rebaudo and Samuel Indyk

June 26 (Reuters) – The German bond yield curve continued to steepen on Thursday, driven by expectations of Berlin’s increased borrowing, after U.S. economic data failed to provide clear direction for government bond markets.

German lawmakers on Thursday passed a multi-billion-euro package of fiscal relief measures to boost investment, part of the new government’s plans to put Europe’s largest economy back on track for growth.

Markets are pricing in increased bond supply from Germany to fund such plans, which is expected to push longer-dated bond yields higher.

Shorter maturities, in the meantime, continue to track expectations for European Central Bank rates, which have remained relatively stable.

German 30-year government bond yields reached their highest level since May 26 at 3.111% and were last up 3 basis points (bps) at 3.10%.

The 10-year yield was up 0.5 bps at 2.57%, and the 2-year yield – more sensitive to ECB policy rates expectations – was down 2.5 bps at 1.82%.

The gap between 30-year and 2-year yields was up 6 bps on track for its biggest daily rise since early April.

Deutsche Bank raised on Thursday its forecast for the German economy to 0.5% growth in 2025, and brought forward its peak growth forecast of 2.0% to 2026.

“Not only is the fiscal impulse over this period likely to be more positive than we previously assumed, but the economy is also heading into this fiscal expansion with greater momentum than expected, navigating the tariff turmoil with surprising poise,” Deutsche Bank chief economist Robin Winkler said.

Yields on 2-year U.S. Treasury notes eased early on Thursday after the Labor Department reported a slight fall in weekly jobless claims, but higher recurring claims indicated that more people were staying out of work for longer.

On Wednesday, NATO leaders agreed to boost spending on defence to 5% of GDP, but some European nations, already running large deficits, may struggle to meet the target.

Germany, which has greater scope to increase spending, published its draft budget for 2025 this week, which included record investments to boost growth.

Geopolitics has taken a back seat on Thursday after the ceasefire between Israel and Iran held for now. Oil prices were steady on Thursday.

But there are a number of other key risk events on the horizon. U.S. President Donald Trump’s 90-day pause to reciprocal tariffs ends on July 9 and it remains uncertain what will happen when the deadline passes.

Trump is also pushing Republicans in the Senate to advance his tax-cut and spending bill, which also includes an extension of the debt ceiling. Republican leaders are pushing to get the bill through the Senate and onto Trump’s desk before the July 4 Independence Day holiday.

Italy’s 10-year bond yield was down 2 bps at 3.49%, pushing the yield gap between Italian and German 10-year bonds tighter by 2 bps to 91.5 bps.

(Reporting by Stefano Rebaudo, editing by Tomasz Janowski)