European government bond yields fell across all maturities on Tuesday, driven by declining energy prices following reports suggesting a potential easing of tensions in the Middle East.
The yield curve experienced a bull steepening. Two-year German and UK government bond yields both dropped by 11 basis points, while French and Italian yields of the same maturity fell by 12 basis points.
Traders reduced their bets on further monetary policy tightening by the Bank of England and the European Central Bank. Money markets are now pricing in 36 basis points of rate hikes by the Bank of England by 2026, and 57 basis points by the European Central Bank.
As of 4:35 PM London time, benchmark Brent crude futures were down 3.7%, trading around $95.7 per barrel.
This movement followed reports that Iran is considering a temporary halt to shipments through the Strait of Hormuz to avoid directly testing a US blockade and disrupting negotiation processes.
The market interpreted these reports as a signal of an increased probability of successful peace talks.
Market Data: German bond yields fell 6.7 basis points to 3.02%. German government bond futures rose 64 ticks to 125.39. The yield on Italy's 10-year government bond fell 11 basis points to 3.78%. The Italy-Germany 10-year government bond yield spread narrowed by 4 basis points to 75 basis points. The yield on France's 10-year government bond fell 9 basis points to 3.66%. The yield on the UK's 10-year government bond fell 9 basis points to 4.78%.
