UK government bond yields fell sharply after data showed inflation dropped to an 8-month low, with the 2-year yield recording its biggest single-day decline in a month.

The UK 2-year bond yield closed down 6 basis points at 3.71%, as traders priced in expectations of a 67-basis-point rate cut by the Bank of England by the end of 2026, up from around 60 basis points on Tuesday.

Italian long-dated bonds underperformed, with the 30-year yield rising 3 basis points to 4.41% after Prime Minister Giorgia Meloni threatened to oppose two key EU initiatives.

Market focus now shifts to Thursday’s rate decisions from Sweden’s Riksbank, Norway’s Norges Bank, the Bank of England, and the European Central Bank, as well as US CPI data.

Market Snapshot: - German 10-year yield rose 2 basis points to 2.87% - German bond futures fell 15 ticks to 127.41% - Italian 10-year yield climbed 3 basis points to 3.58% - Italy-Germany yield spread widened 1 basis point to 71 basis points - French 10-year yield increased 2 basis points to 3.56% - UK 10-year yield declined 4 basis points to 4.48%