European Bond Market: Eurozone Bonds Rally Across the Board as Traders Scale Back Rate Hike Bets

European government bonds all rose as oil prices declined, prompting traders to lower their expectations for rate hikes in 2026. The rally narrowed slightly toward the close.

The yield on 10-year German government bonds fell by 3 basis points to 2.95%, after reaching the largest intraday decline since October; Italian government bond yields also declined, with the spread over German bonds narrowing by 3 basis points.

The swap market shows traders now expect the European Central Bank to raise rates by 42 basis points in 2026, down 6 basis points for the day.

UK government bonds rose, led by the long end, with the 30-year yield dropping 6 basis points to 5.44%; traders lowered their expectations for a rate hike by the Bank of England in 2026 by 10 basis points to 17 basis points.

Market:

• German 10-year government bond yield down 3 basis points at 2.95%
• German government bond futures up 32.00 points at 126.22%
• Italian 10-year government bond yield down 6 basis points at 3.73%
• The spread between Italian and German bonds narrows by 3 basis points to 78 basis points
• French 10-year government bond yield down 7 basis points at 3.61%
• 10-year UK government bond yield down 5 basis points at 4.77%