German government bonds advanced, while the yield premium of French debt over German debt narrowed. This followed an unverified report that Qatar and Pakistan had proposed a fresh plan to help bring the war in Iran to an end, which sent energy prices lower.
Bloomberg later cited an unnamed diplomat involved in the talks as saying that reports of a deal being imminent were not accurate.
Money markets trimmed their bets on European Central Bank rate hikes by as much as 4 basis points, now pricing in a cumulative 23 basis points of tightening by year-end and 71 basis points by the end of 2027.
The spread between French and German bonds widened 5 basis points to 153 basis points; the spread between Italian and German bonds widened 1 basis point to 112 basis points, having earlier reached 119 basis points.
Brent crude fell 1.1%, after earlier rising 2.2%; European natural gas futures dropped 2.9%.
UK government bonds rose, but the yield curve flattened; UK September inflation data will be released on Wednesday before cash trading begins.
Markets: German bond yields fell 6 basis points to 3.39%; German bond futures rose 68 ticks to 121.82; Italian 10-year bond yields fell 5 basis points to 4.52%; French 10-year bond yields fell 2 basis points to 4.92%; 10-year UK bond yields fell 3 basis points to 5.40%.
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