German government bonds extended their losing streak to five consecutive sessions as a supply disruption on Saudi Arabia's East-West pipeline fueled a sharp rally in oil prices. The German curve, along with other eurozone sovereign curves, steepened as investors digested new supply from the European Union, including a €5 billion 30-year bond sale, while Germany is set to auction long-dated paper on Wednesday.

Traders trimmed their expectations for rate hikes from the European Central Bank this year, now pricing in just 14 basis points of tightening for next month, down from a previous estimate of 18 basis points. The shift reflects growing caution over the economic outlook amid higher energy costs.

UK gilts also declined for a second day, with the curve steepening and pushing the 30-year yield toward the 6% threshold, a level not seen since 1998. Money markets kept their Bank of England rate hike bets largely unchanged, anticipating a 6 basis point move on Thursday and a total of 47 basis points by year-end.

Market snapshot: German 10-year yields rose 2 basis points to 3.54%, while Bund futures fell 8 ticks to 120.20. Italy's 10-year yield climbed 3 basis points to 4.42%, with the spread over German peers widening 1 basis point to 97 basis points. France's 10-year yield gained 3 basis points to 4.51%, while the 10-year gilt yield advanced 3 basis points to 5.40%.