Gilt yields tumble near to record lows amid EU crisis

The yield on gilts tumbled near to record lows this morning as investors piled into any sovereigns which have retained their AAA-status after widespread EU downgrades.

The yield on UK 10-year gilts fell to within a whisker of a new record low in early trading, hitting 1.924% - close to the all-time low of 1.922% seen at the end of last year.

Meanwhile German bunds saw a similar flight to safety, as the yield on 5-year bunds fell to match its previous record low of 0.733%. The yield on 10-year bunds rose marginally to 1.77%.

Dutch 10-year bond yields also hit a euro-era record low of 2.064% today.

The drop in yields came after Friday's move by Standard & Poor's (S&P) to downgrade the credit ratings of a host of European countries, including France, which lost its prized AAA-rating.

The downgrades caused tremors across Europe and raised the prospect of a number of countries leaving the euro, with the effectiveness of the European Financial Stability Facility (EFSF) now in question.

France was a key backer of the EFSF alongside German, and its downgrade impacts the credit-worthiness of the bailout fund, as well as putting more of the burden on Germany.

Meanwhile a rescue deal for Greece also collapsed last Friday, leaving the country facing the prospect of default in March.

Markets were lower this morning in the wake of the downgrade and Greek debacle, but there has yet to be a major sell-off, with many commentators pointing out the French downgrade was not unexpected.

By 10:18am, the FTSE 100 was down 0.3% or 15 points, at 5,621.4, while the French Cac was off 0.6% or 20.46 points, at 3,176.03.

German shares were flat, with the Dax down 2.2 points to 6,140.87.