European and UK government bonds advanced throughout the trading session, supported by falling oil prices and central bank decisions to maintain interest rates unchanged amid rising energy costs. The yield curve experienced a bull steepening: 2-year yields for Germany and France dropped by 10 basis points, while Italy and the UK saw declines of 11 basis points. Markets scaled back their bets on future central bank rate hikes, now pricing in a total of 74 basis points of increases from the European Central Bank by year-end, and 66 basis points from the Bank of England. Interest rate swaps indicate a nearly 90% probability of an ECB rate hike in June, compared to a 60% chance for the Bank of England. Ahead of the central bank meetings, short-end yields fluctuated with oil prices. Yields initially rose as Brent crude hit a four-year high, but subsequently reversed to trade approximately 7 basis points lower on the day as oil prices pared gains. Market sentiment eased as central banks signaled no rush to raise interest rates. UK government bonds extended their gains after the Bank of England's Monetary Policy Committee voted 8-1 to keep rates on hold. Eurozone bonds also climbed following the European Central Bank's unanimous vote to maintain its key deposit rate at 2%. Post-meeting press conferences from Bank of England officials and ECB President Christine Lagarde provided a slight additional boost to the bond rally, with both central banks emphasizing a cautious approach toward future rate moves.

Market data: Germany's 10-year bond yield fell 8 basis points to 3.03%; German bond futures rose 62.00 points to 125.37%; Italy's 10-year bond yield decreased 10 basis points to 3.86%; The yield spread between Italian and German bonds narrowed by 2 basis points to 83 basis points; France's 10-year bond yield dropped 9 basis points to 3.69%; The UK 10-year gilt yield declined 7 basis points to 5.00%.