Leading US lawmakers expressed confidence on Sunday that they could reach a deal to head off looming across-the-board tax hikes and spending cuts that could push the economy back into recession.
"We're seeing a better performance of risk markets in general, particularly equities... Consequently, the safe-haven bid of core government bonds has been partially unwound and gilts yields have followed Treasuries and Bund yields higher," said Nick Stamenkovic, strategist at RIA Capital Markets.
The December gilt future settled 46 ticks lower at 120.05, underperforming the equivalent Bund which was 31 ticks lower.
"I think gilts will continue to underperform Bunds near term... There's a nagging concern from some investors that the Bank of England anti-inflation credentials are being somewhat undermined," Stamenkovic said.
Ten-year gilt yields rose 4 basis points to 1.78 percent. Their spread versus Bund yields was 2 basis points wider at 42 basis points.
A key focus for gilt traders this week will be the minutes of the Bank of England's latest policy meeting, due out on Wednesday.
Bank of England policymaker David Miles said on Sunday that the central bank still had the firepower to boost the economy and had scope for further stimulus.
"We may need more stimulus... That will depend on how the headwinds holding back growth play out," he said.
Investors are also preparing for an auction of 4.5 billion pounds of 1 percent 2017 gilts on Tuesday.
"Given that the Bank of England has shown no inclination to cut rates (and) it looks like QE has taken a pause until early next year, I don't think demand is going to be overwhelming but it should get the auction away relatively easily," Stamenkovic said.
Market participants also expect a syndicated sale of 0.125 percent 2044 index-linked gilts on Thursday.
BNP Paribas strategist Shahid Ladha said the Debt Management Office was likely to sell 3.5 billion pounds of the linkers.
"This will be the last UK sovereign long-end supply event of 2012... (and) should meet with strong support from index extension, coupons and foreign demand," he said.