British government bonds advanced for a second consecutive session, outperforming their German and US counterparts, after the Bank of England announced a pause on all quantitative tightening (QT) gilt sales until April and a complete cancellation of long-dated bond disposals. Meanwhile, policymakers voted 6-3 to hold the benchmark interest rate at 3.75%, in line with market expectations.

The 30-year gilt yield dropped 12 basis points to 5.74%, marking its steepest decline since May 20, while the 5s30s curve flattened 8 basis points to 93 basis points, its lowest closing level since March 2025.

Traders scaled back their wagers on further rate hikes from the Bank of England, now pricing in 22 basis points of tightening by November and 39 basis points by year-end, down from 28 and 44 basis points respectively on Wednesday. Swap markets continue to indicate four additional rate increases by the middle of next year.

In the euro zone, the German yield curve also flattened, with mixed moves across maturities as long-end yields followed UK gilts higher. Traders' expectations for European Central Bank rate hikes remained broadly steady, with 36 basis points of tightening priced in by year-end and 81 basis points by the end of next year.

Elsewhere, the German 10-year yield slipped 3 basis points to 3.48%, while German bond futures gained 14 ticks to 120.74. The Italian 10-year yield fell 2 basis points to 4.34%, and the French 10-year yield declined 2 basis points to 4.44%. The benchmark 10-year gilt yield traded 7 basis points lower at 5.22%.