UK government bonds pared losses and finished Friday's session largely flat, also ending the week broadly unchanged, driven by optimism surrounding progress in US-Iran negotiations. This week's trading range was the third largest since April.
Traders scaled back their expectations for Bank of England interest rate increases. They now anticipate a total of 72 basis points in hikes for the year, down from 77 basis points on Thursday and 87 basis points last week.
German government bonds also trimmed their declines but remained on track for a fourth consecutive weekly loss, the longest such streak since November.
Swap market data indicates expectations for the European Central Bank to raise rates by 80 basis points by year-end, lower than the 85 basis points priced in on Thursday but higher than the 73 basis points from the previous Friday.
The underperformance of Italian government bonds relative to German bonds narrowed, after the yield spread between their 10-year notes exceeded 100 basis points for the second time this week.
Market Data: The yield on the German 10-year government bond rose 3 basis points to 3.11%. The German government bond futures contract fell 51 ticks to 124.47. The yield on the Italian 10-year government bond rose 5 basis points to 4.07%. The yield spread between Italian and German government bonds widened by 2 basis points to 97 basis points. The yield on the French 10-year government bond rose 5 basis points to 3.85%. The yield on the 10-year UK government bond rose 1 basis point to 4.99%.
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