One major indicator for how well the economy is recovering is the change in government bond prices, and by this measure many European countries are well on their way to recovery. Interest rates on Spanish ten-year government bonds fell below 5% for the first time in over a year, 2.5 percentage points lower than July, 2012. Meanwhile, Italy, Greece, and Portugal are experiencing similar drops in their interest rates. Not only this, but long-term bonds seem to be increasing in sales as the risk of taking them on lessens. This is in large part due to institutional investors such as pension fund managers and insurers returning to this market. The bonds still offer favorable yields but now come with less risk.
This new-found security may be owed largely to the European Central Bank's announcement that it will do whatever it takes to save the Euro. The ECB's president believes that a "positive contagion" is sweeping over Europe. We're not out of the woods yet, though. While many view confidence in the bond-markets as a turning point in our recovery, others believe that the majority of this new demand for long-term government bonds comes from domestic banks. This is concerning to some because it could mark a strengthened connection between weak banks and weak governments. There is also concern that this upturn may blunt incentives for policy makers to make the tough decisions needed for economic reform.
http://www.economist.com/news/finance-and-economics/21569727-government-bond-markets-peripheral-countries-are-soaring-time-celebrate
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