UK government bonds rose across the curve, with gains broadly in line with French and Italian debt and outperforming German and US Treasuries, after the United States and Iran signaled openness to negotiations, sending energy prices sharply lower.
Traders cut their bets on the scale of Bank of England interest-rate increases by as much as 8 basis points, now expecting a cumulative 101 basis points of tightening by the end of next year; swap markets indicate a 25 basis point hike on Thursday.
Brent crude fell 7.8%, while European natural gas futures dropped 9.9%.
The yield spread between French and German government bonds narrowed by 4 basis points to 161 basis points, and the spread between Italian and German bonds narrowed by 6 basis points to 113 basis points.
Market levels:
German government bond yields fell 3 basis points to 3.29%.
German government bond futures rose 14 ticks to 122.57.
Italian 10-year government bond yields dropped 9 basis points to 4.42%.
French 10-year government bond yields declined 7 basis points to 4.90%.
UK 10-year government bond yields fell 9 basis points to 5.19%.
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