LONDON: British government bond yields struck new record lows on Monday, pushed down by uncertainty about the outcome of next week's European Union membership referendum and by a rally in bonds around the world.
A move by investors to buy up safe-haven gilts - which pushes down the yield - largely reflected nervousness around sterling assets ahead of the June 23 vote, which opinion polls show will be a close call.
Earlier on Monday, the pound fell to an eight-week low, while the cost of hedging sterling against big swings versus the euro hit a record high.
Ten-year gilts outperformed both German Bunds - which hit their own record low yields barely above zero on Friday - as well as US Treasuries.
Shaky global growth and expectations that the European Central Bank and Bank of Japan will further ease monetary policy have also contributed to a surge in high-rated government bond prices around the world.
The 10-year gilt yield fell to a new all-time low of 1.20 percent in early trading, and was last down just over 1 basis point on the day at 1.22 percent, according to Reuters data. The 30-year gilt yield also struck a new record low of 2.038 percent and was last down a basis point at 2.05 percent.
Gilt prices, which move inversely to yields, often rise in response to uncertainty in financial markets because of their safe-haven status, usually at the expense of European and British equity prices. Furthermore, the Bank of England has said it might cut interest rates to offset the shock of an "Out" vote to the economy, something which would boost demand for bonds further.
"Gilts have outperformed today, that's probably driven by the Brexit factor. But the key global driving force is one where investors continue to search for yield," said Nick Stamenkovic, fixed income strategist at RIA Capital Markets.
The spread between two-year and 10-year gilts narrowed to around 83 basis points - the flattest yield curve since the escalation of the financial crisis in late 2008.
"Investors have been forced to move further down the curve to get that yield pick-up," said Stamenkovic on why long-dated gilt yields have fallen so much.
The yield spread between 10-year gilts and the equivalent Bund narrowed to 118.3 basis points, the smallest gap since March 17. It last stood at 119.5 basis points, down around 2 basis points on the day.
"Gilts, Bunds and (US) Treasury yields continue to fall and there's no sign of it ending, particularly as equities come under pressure amid rising risk aversion," Stamenkovic said.
European shares fell 1.5 percent and Asian stock markets logged their biggest falls in four months after a poll late on Friday gave Britain's "Leave" camp a 10-point lead.
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