LONDON—The bond markets and the economies of Europe’s troubled countries tell two very different stories this year: The one is rallying, the other sinking.

In July 2012, Italian 10-year bonds yielded more than 6%; this week they fell below 4%. Falling yields mean rising prices. The Italian economy, meanwhile, has been ugly. Gross-domestic product in the fourth quarter of 2012 slid 2.8% from the same period in 2011, the sharpest quarterly fall since 2009. Italian unemployment was 11.6% in February, up from 10.6% in July. The tale is similar in Spain.

The bond-market rally has broad implications for the euro zone. At a basic level, access to financing is the measure of the crisis. Greece, Ireland, Portugal and Cyprus ultimately needed bailouts because they couldn’t persuade investors to lend them money. Spain and Italy can avoid similar fates so long as investors are buying bonds.

Right now, demand seems robust: 

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