The yield spread between UK and German government bonds widened after contrasting performance in PMI data.

Due to the contrast between the robust Purchasing Managers' Index (PMI) data in the UK in April and the weak PMI in Germany, the yield spread between UK government bonds and German government bonds widened. The UK Composite PMI, which measures manufacturing and services activity, rose from 50.3 in March to 52.0 in April, exceeding expectations and comfortably above the 50 mark. In contrast, the German Composite PMI dropped from 51.9 in March to 48.3 in April, a larger than expected contraction indicating economic activity shrinking. Following the release of this data, investors raised their expectations for UK interest rates, with two rate hikes expected by 2026. Data from Tradeweb shows that the yield spread between two-year UK government bonds and German government bonds widened from 177 basis points before the data release to 182 basis points.