Bond market shows signs of European recovery

 Bond market shows signs of European recovery 

In another sign of the improved economic outlook in Europe, an often watched bond-market signal of the strength of the European and American growth outlooks is coming together.

The differential between the German bonds, or bunds, and U.S. Treasurys has been falling in recent weeks after hitting a three-year high. Because the two country’s bonds are seen as havens for investors, their yields are often taken as a sign of their economic outlooks: yields in both countries rise as the economy improves.

The 10-year Treasury note  10_YEAR 0.12%  yielded 2.577% on Thursday, while the 10-year German bund  BX:TMBMKDE-10Y -1.37%  yielded 1.676%. That brought the spread between them down to about 90 basis points, according to Tradeweb.

While U.S. bond yields have been steadying over much of the past few weeks, German yields have been rising, bringing the spread between them lower.

“It’s bunds catching up to Treasurys and not the other way around. The driver seems to be more the European market reacting to data,” said Michael Pond, head of global inflation-linked research at Barclays.

A recent bout of positive economic data is in part responsible for the rise in German yields, including Ifo business confidence rising Thursday and euro-zone PMI turning positive for the first time in 18 months on Wednesday.