The election-induced drop in Treasury yields rippled overseas, dragging down borrowing costs in Europe as investors wrote off hopes that a big U.S. spending package could give the global economy a jolt.

Investors in Europe had been looking for a big stimulus to boost inflation and economic growth as a spillover effect from the U.S. It became clearer by Thursday morning that the U.S. elections were closer than polls and investors had expected and that there would be no sweeping Democratic “blue wave” to carry out ambitious spending plans.

German 10-year yields hovered around their lowest levels since March on Thursday, dropping to minus 0.657% in early trading before rebounding to minus 0.636%, slightly above Wednesday’s close, according to Tradeweb.

Italian 10-year yields fell further Thursday, and Italy’s five-year yields went negative for the first time, touching minus 0.021% before closing just in positive territory at 0.003%.

“Everything Europe could be hoping for in terms of traction from the global environment, including a large U.S. fiscal package and a weaker dollar, may not happen after all,” said Fred Ducrozet, strategist at Pictet Wealth Management.

“One immediate consequence will be that the European Central Bank may have to ease even more than expected in December.”

Mr. Ducrozet is already expecting an increase of EUR500 billion, equivalent to $586.12 billion, to the capacity of the ECB’s pandemic emergency bond-purchasing program and an increase in the monthly rate of bond purchases under its main quantitative-easing program when the central bank next meets in December.

While expectations for the larger stimulus plan proposed by Democrats faded with the election results, that doesn’t preclude a smaller bill passing Congress. Senate Majority Leader Mitch McConnell said Wednesday he would push for a spending bill before the end of the year.

The European economy is expected to shrink significantly this year. The European Commission revised down its estimates for a rebound in 2021 as fresh Covid lockdowns take hold. The EU’s executive arm expects next year’s real GDP in the EU to improve by 4.1% compared with its earlier prediction of 6.1% growth.

Yields on U.S. Treasurys were more stable Thursday after falling sharply a day earlier. The yield on the 10-year U.S. Treasury note settled at 0.775%, according to Tradeweb, compared with 0.768% on Wednesday.

Yields held fairly steady after the conclusion of the Federal Reserve’s two-day policy meeting. There was no change to the commitment to provide sustained stimulus.