LONDON: British government bonds climbed early on Thursday, tracking Bunds after Spain's credit rating was cut to just one notch above non-investment grade.
Standard and Poor's slashed Spain's rating to BBB-minus, with a negative outlook, citing a deepening economic recession that is limiting the government's policy options.
At 0751 GMT the December gilt future was 23 ticks higher at 120.14.
"(The) downgrade ...has done little to help broader risk sentiment," Lloyds strategists said in a note.
In Britain, traders awaited an auction of 1.5 billion pounds of new 0.125 percent index-linked gilts due 2024, with results due around 0930 GMT.
Strategists expected decent demand for the linker, albeit tempered somewhat by a re-opening of the gilts on Dec. 13.
"The bond appears comparatively cheap (in) relative value," said Henry Skeoch at Barclays.
"The 10-year sector on the linker curve has performed strongly in recent days, boding well for the supply, as the lack of immediate concession indicates relatively robust demand for the sector," he added.
Gilts lagged Bunds after Bank of England policymaker Martin Weale said that another round of quantitative easing might not be "compatible" with the central bank's inflation target.
Some in the market also re-focused on a relaxation of capital and liquidity rules for British banks, which dampened demand for safe-haven sterling assets.
Ten-year gilt yields dipped 1 basis point to 1.75 percent.
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