This paper examines whether information from bond markets provides a reliable signal for future economic activity in Europe. The inclusion of a risk-adjusted bond yield spread improves markedly the goodness of fit of the forecasting equation for economic activity in four countries on the European periphery. The within-sample forecasting ability of the GZ-spread is remarkable, both over the whole sample period and a sub-sample period marking the effective beginning of the EMU in Europe. Its effect on economic activity is felt particularly during the 2007-12 Crisis period. For Germany the predictive ability of the GZ-spread is less impressive