Europe Defense Spending Lifts Stocks, Hurts Bonds: Markets Wrap

European bonds slipped and shares in defense companies rallied on the likelihood of greater military spending, which could force governments to step up borrowing in the coming years.

Prices for German, French and Italian bonds all declined, with 10-year bund yields — the benchmark borrowing rate for the euro area — reaching the highest in more than two weeks. While the bond pullback slowed, Europe’s Stoxx 600 index extended gains to rise 0.5%, and a Goldman Sachs Group Inc. index of European defense shares topped a record high.

German defense firm Rheinmetall AG surged 14%, helping lift the Frankfurt bourse ...