European bond market: UK government bonds stabilize, traders downgrade expectations of Bank of England interest rate hikes

Driven by an optimistic mood as the U.S. and Iran move toward negotiations, British government bond losses narrowed, ending Friday’s session nearly flat. The week overall was also roughly flat; earlier this week, the trading range was the third-largest since April.

Traders have cut their bets on further interest-rate hikes by the Bank of England. They now expect a total of 72 basis points of hikes this year, down from 77 basis points on Thursday and 87 basis points last week.

German government bond losses also narrowed, but they are still on track for a fourth consecutive week of declines, the longest streak since November.

The swap market shows that markets expect the European Central Bank to raise interest rates by 80 basis points by year-end, down from 85 basis points on Thursday but up from 73 basis points last Friday.

Italy’s government bonds narrowed their underperformance versus Germany. Earlier this week, their 10-year yield spread widened by more than 100 basis points for the second time.

Market:

• Germany’s 10-year government bond yield rose by 3 basis points to 3.11%.
• German government bond futures fell by 51 ticks to 124.47.
• Italy’s 10-year government bond yield rose by 5 basis points to 4.07%.
• The Italy-Germany government bond yield spread widened by 2 basis points to 97 basis points.
• France’s 10-year government bond yield rose by 5 basis points to 3.85%.
• The UK’s 10-year government bond yield rose by 1 basis point to 4.99%.

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责任编辑：何云