LONDON: Short-dated British government bond yields, pressured by weak US economic data and doubts about the health of Italy's banking sector, dipped sharply in early deals on Thursday before recovering to trade little changed.
In volatile low-volume trade, the two-year yield slipped to its lowest since August 2012 for the second day running, falling to 0.042 percent shortly after trading opened. It later clawed its way back to 0.057 percent, roughly flat on the day.
US Treasury yields slipped to two-week lows late on Wednesday after data showed contracts to buy previously owned US homes falling to their lowest level in nearly a year.
Gilts across the range of maturities followed suit.
The euro zone market, where yields also fell early on Thursday, gained some reassurance from the results of an Italian bond auction in which borrowing costs fell, pointing to resilient appetite for the country's debt as the government prepares to rescue Monte dei Paschi di Siena and other weak banks.
Ten- and 30-year gilt yields fell to their lowest level since Nov. 9 - the day after Donald Trump won the US presidential election.
The 10-year gilt yield was at 1.24 percent, down 6 basis points on the day, having bottomed out at 1.224 percent in early trade.
Since trade reopened on Wednesday after the Christmas holidays, the 10-year gilt yield has fallen more than 10 basis points, marking the sharpest two-day drop since Aug. 5.
The premium that 10-year gilts offer over the equivalent German Bund narrowed by around 4 basis points to 106 basis points, the smallest in around three weeks.
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