A US agreement over how to avoid a 'fiscal cliff' of spending cuts and tax hikes scheduled to take effect in early 2013 had looked likely as the two sides made concessions. But the mood soured after Republicans announced plans on Tuesday to put an alternative tax plan to a vote this week.
At 0839 GMT, the March gilt future was 2 ticks higher at 117.47, while the equivalent Bund was 12 ticks higher on the day.
"The political newsflow about the (US) fiscal cliff keeps dominating near-term market action," said Lloyds strategists.
Ten-year gilt yields were broadly steady at 1.96 percent. The spread over equivalent Bund yields was 1 basis point tighter at nearly 54 basis points - near levels not seen since last year.
Britain will release retail sales data for November at 0930 GMT, with economists forecasting sales volumes ticked up 0.3 percent on the month after falling 0.8 percent in October.
"Retail sales fell in October, signalling a weak start to Q4 consumer spending. November is unlikely to see any significant rebound," said Lloyds strategists.