German government bonds held steady while French debt underperformed, as traders monitored diplomatic efforts aimed at ending the US-Iran conflict amid fluctuating Brent crude oil prices.

The yield spread between French and German bonds widened by 3 basis points to 104 basis points, while the Italian-German spread increased by 1 basis point to 89 basis points.

Traders kept their European Central Bank rate hike expectations broadly unchanged, with market pricing indicating 12 basis points of tightening next month, 34 basis points by year-end, and 82 basis points by the end of 2027.

The UK gilt yield curve steepened slightly, with traders maintaining their Bank of England rate hike bets; market pricing currently reflects 21 basis points of tightening in November and 37 basis points by year-end.

Market snapshot: The 10-year German Bund yield slipped 1 basis point to 3.45%, while Bund futures gained 1 point to 121.12. The 10-year Italian yield was roughly flat at 4.34%, the 10-year French yield rose 2 basis points to 4.49%, and the 10-year UK gilt yield climbed 2 basis points to 5.23%.