European Bond Yields Settle for Less Than 3-2-1

European markets are enjoying a summer respite. In the past six weeks, benchmark equity indexes have rallied by as much as 10%, the euro is modestly stronger and holding above parity to the dollar, and government borrowing costs have declined. Time to head for the sun-loungers with nary a care? Sure, as long as the dollar doesn’t regain its upward momentum and the global economy doesn’t take another sickening lurch weaker.

Rising consumer prices have prompted monetary-policy responses from the Bank of England and, belatedly but firmly, the European Central Bank. Economies are reopening from pandemic lockdowns, especially in the tourism-focused southern European nations. Second-quarter euro zone gross domestic product rose 0.7%, well above forecasts, while UK GDP rose a healthy 0.8% in the first quarter.