European defense stocks hit record highs on Monday as state leaders met to discuss increased military spending and Ukraine’s future security, amid mounting pressure from Washington.

The Stoxx 600 Aerospace and Defense index surged over 3% to a new record high, with German arms maker Rheinmetall leading gains, rising 11% to a record level. Other major defense companies saw significant increases, with Sweden’s Saab gaining 9%, Britain’s BAE Systems up 6%, and France’s Thales and Italy’s Leonardo both rising more than 5%.

The rally came as European Commission President Ursula von der Leyen proposed exempting defense from EU fiscal rules by activating an escape clause, which would allow member states to boost military budgets without triggering excessive deficit procedures. NATO Secretary General Mark Rutte indicated that the alliance’s spending target would be “considerably more than 3%” of GDP, up from the current 2% threshold.

French President Emmanuel Macron hosted European leaders, including Britain’s Prime Minister Keir Starmer, for an emergency summit on Ukraine. The meeting follows U.S. officials’ suggestions that Europe would have no role in upcoming peace talks.

The prospect of increased defense spending impacted bond markets, with yields rising across Europe. The German 10-year bond yield increased by 7 basis points to 2.49%, while UK gilt yields climbed 5 basis points to 4.56%.

Total EU defense expenditure is expected to have risen more than 30% to 326 billion euros in 2024, though some states, including the Netherlands and Italy, still fall short of NATO’s current 2% target. The defense sector index has more than doubled since Russia invaded Ukraine three years ago.

The broader European stock market remained steady, with the STOXX 600 index rising 0.2% on Monday. U.S. markets were closed for Presidents Day.