LONDON (Reuters) - Germany’s benchmark 10-year bond yield slid back into negative territory on Monday as worries over Brexit saw investors rushing for safe haven assets, tempering the impact of a surprise rise in business sentiment which lifted yields earlier in the session.

FILE PHOTO: A two Euro coin is pictured next to an English ten Pound note in an illustration taken March 16, 2016. REUTERS/Phil Noble/Illustration

Euro zone bond yields had risen after the March Ifo business climate index rose to 99.6 from 98.7 in February and compared with expectations for a reading of 98.5.

But German Bund yields slid back towards the 2-1/2 year lows seen on Friday after poor manufacturing data renewed concerns about a lasting slowdown in Europe’s powerhouse economy.

The 10-year benchmark tracked the move lower in 10-year British Gilt yields, which fell below 1 percent to 0.989 percent for the first time since September 2017.

UK Prime Minister Theresa May said there was not yet enough support for her to put her Brexit deal to a vote in parliament for a third time, but she would continue with talks with lawmakers to try to get their backing. She also said that the UK was continuing to prepare for a no deal.

Germany’s 10-year bond yield was just half a basis point higher at -0.02 percent, and firmly into negative territory. It had touched highs of 0.004 percent after the Ifo print.

“Ifo is more important than PMI and it definitely put Friday’s figures into perspective, but the reason this is not lasting is because we have all the amendments votes on Brexit this evening which is the main driver now,” said Norbert Wuthe, rates strategist at Bayern LB.

Other core euro zone bond yields also came off recent highs.

“It (the Ifo) is a bit of a reprieve after the significant miss from PMI on Friday and it confirms that it is the manufacturing side of Europe or Germany which is really weighing on sentiment,” said Christoph Rieger, rates strategist at Commerzbank.

“It confirms it is China or the general export situation which is at the heart of the problems.”

Heightened concern about the global growth outlook has pushed German Bund yields down almost 20 bps this month, in line with steep falls in the yields of other major bond markets.

Friday’s German manufacturing activity survey showed a contraction for the third straight month. Preliminary measures of U.S. manufacturing and services activity for March showed both grew at a slower pace than in February.

After Friday’s U.S. numbers, the gap between yields on three-month U.S. Treasury bills and 10-year notes fell below zero for the first time since 2007.

That gap moved back into positive territory after the German Ifo survey.

An inverted yield curve is widely considered to be a leading indicator of recession, and that spread is the Federal Reserve’s preferred measure of the yield curve.

For a graphic on U.S. yield curve inverts for first time since 2007, see - tmsnrt.rs/2UNVc1P

“There is a strong recession signal from the U.S. curve and that is important,” said Nordea chief analyst Jan von Gerich. “It would be dangerous to say the move in bond yields is over- done -- the momentum is quite strong and I wouldn’t catch a falling knife.”

Goldman Sachs analysts said the risk-reward balance remained in favour of being exposed to long-dated European government debt.

“We would fade any Bund-led sell-off until there is more convincing evidence growth is returning to an above-trend pace,” they said in a note.

Heightened uncertainty over Brexit and world trade tensions have also bolstered demand for safe-haven bonds.

On Monday, Japanese 10-year government bond yields slumped to minus 9.2 basis points, the lowest since September 2016. Australian 10-year year yields AU10YT=RR plunged to a record low of 1.754 percent..