LONDON: Weak jobs data that has dashed expectations for an imminent rise in US interest rates and growing concerns over whether Britain will stay in the European Union pinned German 10-year bond yields near record lows on Monday.
Bund yields posted their biggest one-day fall in a month on Friday, hitting their lowest level in more than a year, after US payrolls data showed the slowest job growth in more than five years.
The safe-haven bond market held its firm tone after a poll published early on Monday showed the campaign for Britain to leave the European Union has a 2-point lead over the "remain" camp.
As the June 23 referendum on the UK's EU membership draws closer, unease about a potential Brexit has grown.
Concerns about political risk in Europe were also fuelled by gains for the anti-establishment 5-Star Movement in weekend Italian municipal elections.
The 5-Star Movement looked set to take charge of Rome following municipal elections on Sunday that saw it make gains in other Italian cities and pile pressure on Prime Minister Matteo Renzi.
"We have a poll showing the leave camp in the lead in the UK and in Italy we see the 5-Star Movement gaining ground, so political risk is a key issue," said KBC strategist Piet Lammens.
Sterling fell 1 percent against the dollar to hit a three-week low on Monday, with the costs of hedging against swings over the coming months traded at its highest since early on 2009 on Brexit jitters.
Analysts said that growing volatility in sterling would pressure peripheral bond markets which tend to suffer from risk aversion.
Germany's 10-year Bund yield was steady at 0.069 percent - having fallen to its lowest in more than a year on Friday at 0.065 percent. It was within sight of last year's record low of 0.05 percent.
In contrast, peripheral bond yields edged higher, with Italian and Spanish 10-year yields up about 2 basis points each .
Later on Monday, Federal Reserve Chair Janet Yellen will address an event in Philadelphia. Markets will pay close attention to her last official remarks ahead of a media blackout before the Fed's scheduled meeting next week.
"After a very weak non-farm payrolls number, not one rate hike is fully priced in for this year and that will support euro zone and US bonds," said Lyn Graham-Taylor, fixed income strategist at Rabobank.
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