UK government bonds outperformed slightly after comments from Bank of England policymakers reinforced expectations of interest rate cuts.

Yields on UK gilts across maturities fell by 2-3 basis points, with the 30-year yield dropping 3 bps to 5.2%. Traders are now pricing in 56 bps of rate cuts by the end of 2026.

Bank of England official Catherine Mann noted that weak employment prospects could ease inflation concerns, while Clare Lombardelli projected that Chancellor Rachel Reeves' budget would reduce inflation by 0.5 percentage points. Deputy Governor Dave Ramsden signaled a preference for a rate cut next week and suggested rates could stabilize around 3%.

Meanwhile, French long-term bond yields declined 2-3 bps as traders awaited a key vote on the social security budget later on Tuesday.

Market Snapshot: - German 10-year yield fell 1 bp to 2.85%, - German bund futures rose 20.00 ticks to 127.49%, - Italian 10-year yield dropped 1 bp to 3.55%, - Italy-Germany yield spread held steady at 70 bps, - French 10-year yield declined 3 bps to 3.56%, - UK 10-year gilt yield fell 2 bps to 4.51%.