Gilt prices rose steadily throughout the session, and gained extra impetus from big share falls on Wall Street and a dismal US manufacturing survey.

Ten-year yields were 20 basis points down on the day at an all-time low of 2.238 percent after the Philadelphia Federal Reserve activity survey came in far worse than expected, reinforcing the concerns about global growth that had plagued equity markets for most of the day.

"We had very poor data out of the United States, and equity markets have collapsed with the FTSE down over 4 percent. There's a big 'risk-off' move taking place right now," said Jamie Searle, fixed income strategist at Citi.

Bank of England executive director Andrew Haldane said markets were being too pessimistic, in a discussion paper published in the middle of the day before the US data.

Gilt prices pared some of their gains before the end of the session. September gilt futures settled 136 ticks up at 130.40, well below the contract high of 131.05, and the 10-year yield was only 13 basis points down on the day at 2.31 percent by 1540 GMT.

Two, five and 20-year yields showed a similar pattern, after hitting record lows of 0.507 percent, 0.958 percent and 3.377 percent respectively .

Gilts traded in line with safe-haven German government debt for most of the session, after outperforming on Wednesday when Bank of England (BoE) minutes opened the door to future quantitative easing.

But late in the day gilts started to underperform, and the 10-year yield spread widened to 23 basis points, 2 basis points up on the day. Searle attributed this to the Bund future breaking a record high, prompting technical buying of German debt.

On Friday Britain will release July public finance data at 0830 GMT , but Searle said any impact from this was likely to be swamped by shifts in investors' risk appetite.

Further lurches downward in gilt yields cannot be ruled out. "The moves are of such a magnitude that it's not a sentiment that people are keen to stand in the way of," Searle said.

LACKLUSTRE FIVE-YEAR LAUNCH

Rock-bottom yields caused a dearth of demand when Britain launched a new five-year gilt on Thursday.

The UK Debt Management Office (DMO) said it received bids totalling 6.086 billion pounds for the 4.5 billion pounds ($7.454 billion) of the new 1.75 percent January 2017 gilt on offer . That equates to a bid-to-cover ratio of 1.35, the lowest demand since an auction of 2025 gilts on May 4.

The DMO had to offer yields of up to 1.519 percent to sell the 2017 gilt. RBC gilts strategist Sam Hill said that both the bid-to-cover ratio and the 1.1 basis point tail between the maximum and average yields were noticeably worse than for normal five-year auctions.

"I would assign that more than anything to the skinny level of yields on offer -- 1.5 percent on a five-year gilt is a fairly thin yield. It's no real surprise that the market was less willing to turn up in normal size," he said.

Moreover, the 2017 gilt will probably be auctioned a couple more times this year, as the DMO seeks to build the issue up to benchmark size, allowing potential investors to wait for higher yields.

With BoE rates at a record low of 0.5 percent, there is relatively little upside for five-year gilt prices, compared to longer-dated bonds -- something that was reflected in the fact that shorter-dated gilts underperformed longer maturities on Thursday, despite yields on all the gilts hitting record lows.

"People will look at this auction and think those are very low yields for five years, and push along the yield curve to pick up a bit more yield," Hill said.

Copyright Reuters, 2011