Bonds — Same Rise, Different Reasons: US Growth vs. Europe's Debt

Long-term interest rates are rising on both sides of the Atlantic, and on the surface it looks like one move. In the 21 trading days to Thursday, the US 10-year Treasury yield rose 45 basis points to 5.24%, France's 65 to 4.90%, Italy's 49 to 4.71% and Germany's 14 to 3.53%. The engines are different. In the United States yields rise because the economy runs hot. In Europe they rise because governments borrow too much while growth stays weak. For stocks that difference matters more than the level.

America: rates up because growth is strong

Ed Yardeni calls it "growthflation": strong growth plus inflation stuck around 3%. On Thursday the 10-year Treasury yield briefly touched 5.33% and the 30-year 5.68%, both 24-year highs. His numbers from this week's data:

• Nominal GDP — growth before inflation is taken out — rose 6.3% on the year in the second quarter.
• Jobs: first-time jobless claims fell to 197,000, near a 57-year low; continuing claims to 1.70 million, the lowest since March 2023. Announced job cuts (Challenger) fell to 43,281, the lowest September since 2022. ADP counted 90,000 new private jobs.
• Factories: the ISM manufacturing survey stayed at 54.5, its ninth month above 50, the line between growth and contraction. Its prices-paid index rose to 77.9.
• Building: construction spending rose 0.9% in August; office construction, which includes data centres, jumped 4.6% in a month.

Yardeni's point: a 5.2% bond yield does not choke an economy whose nominal output grows 6.3%. It only bites if yields rise above that growth rate, which he does not expect. AI spending works like a private stimulus programme, and the bond market is pricing it.