UK 10-year gilt yields recorded their first weekly decline in four weeks, as government debt maintained Thursday's gains amid a retreat in oil and natural gas prices from earlier peaks. European government bonds also moved higher on Friday, with shorter-dated maturities leading the advance, although Germany's 10-year Bund yield still posted a fourth consecutive weekly rise.

Money markets are currently pricing in a 25-basis-point rate hike at the European Central Bank's meeting next week, along with expectations for cumulative tightening of 46 basis points by year-end. As UK PMI data softened and inflation expectations from the Bank of England's decision-maker panel declined, traders slightly scaled back their bets on further BOE rate hikes before the end of 2025, now pricing in 30 basis points of additional tightening.

Market snapshot: Germany's 10-year Bund yield held steady at 3.34%, while Bund futures climbed 13 ticks to 123.05. Italy's 10-year yield slipped 1 basis point to 4.15%, narrowing the spread over German Bunds by 1 basis point to 81 basis points. France's 10-year OAT yield also dipped 1 basis point to 4.2%, while the 10-year UK gilt yield remained flat at 5.13%.