LONDON: British government bond yields hit a six-week low on Friday in thin trade before Christmas holidays, shrugging off stronger-than expected British growth data and instead taking their lead from signs of progress in Italy's banking troubles.
Ten-year gilt yields dropped as much as 4 basis points on the day to 1.333 percent at 1210 GMT, a level last seen on Nov. 10 when yields were climbing rapidly due to inflation worries after Donald Trump's US election victory.
Five-year, 20-year and 30-year yields showed similar moves.
Italian 10-year bond yields were also down 4 basis points on the day, as Monte dei Paschi said it would request aid from a newly-approved state fund to help struggling banks.
The request from the world's oldest bank came after a private rescue was hampered by political turmoil caused by a referendum this month that led to the resignation of former Prime Minister Matteo Renzi.
With other Italian lenders looking fragile, the new administration of Paolo Gentiloni is looking to end a protracted banking crisis that has gummed up the economy.
Ahead of Britain's four-day Christmas break, 10-year gilt yields are at the bottom of a narrow 1.35-1.50 percent trading range seen since markets digested Trump's victory, but well above the record-low 0.503 percent struck in August when concerns about the economic impact of Brexit were peaking.
Final official growth figures released on Friday showed that in fact Britain's economy lost none of its robust pace in the three months after citizens voted to leave the European Union.
Gross domestic product grew at a quarterly rate of 0.6 percent, the same as in the three months before the referendum and faster than at the start of the year.
However, underlying economic problems persisted, with growth relying heavily on domestic consumers who are increasingly pressured by rising inflation, and exports failing to gain from the big post-Brexit fall in the pound.
Britain's current account deficit widened to 5.2 percent of GDP from 4.6 percent - approaching the record 6.0 percent seen in late 2013.
Nomura strategist Jordan Rochester said foreign investors outside of the United States and Japan had remained strong buyers of British government debt, even as domestic investors had ditched it.
"December so far has seen a pick-up in fixed income inflows," he wrote in a note to clients. "Price action in gilts is determined by non-US or Japanese non-residents, and they will continue to buy 'cheap gilts' rather than be deterred by sterling's depreciation."
Economists expect British growth to slow to 1.1 percent next year from just over 2 percent in 2016, but any boost this might offer to gilt prices is offset by a forecast jump in inflation to close to 3 percent by the end of 2017.
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