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The return on benchmark UK government bonds has fallen to a record low as investors move in to safer assets on concerns about the global economy.

The yield on the UK's 10-year gilt dropped below 1.25% for the first time. The yield on the German equivalent also sank to a record low.

More buyers cause bond values to rise and yields to fall, hitting annuity rates, pension fund income, and debts.

Analysts see it as a "pessimistic" sign.

"The low yield on government bonds paints a pretty pessimistic picture of the global economy, and suggests we are set for an extended period of low or negative inflation, and weak economic performance," said Hargreaves Lansdown analyst Laith Khalaf.

Thin trading

Investors have been worried about a weakening Chinese economy, the outlook for US interest rates, and the UK's pending EU referendum vote. Investors typically buy bonds because they provide a long-term, predictable and - crucially - a secure income stream.

But yields have been falling for months. This time last year, the UK 10-year gilt yield was 2%.

Also on Thursday, the 10-year German Bund yield fell to a record low of 0.027%, while in the US, the yield on 10-year notes fell 1.671%, the lowest for three months.

Jason Simpson, fixed income strategist at Societe Generale, said gilt yields could fall further.

He added that trading in the bond market has been thin recently because investors were probably "sitting on their hands" ahead of the referendum, with the small number of trades exacerbating the size of moves in the market.

'Slipping fast'

Mr Khalaf said: 'While all eyes have been on the EU referendum campaign, gilt yields have been slipping, fast.

"The US Federal Reserve is backing away from interest rate rises following wavering employment data, and in Europe the central bank is pumping billions of euros into the bond market every month in the form of quantitative easing, both of which have served to drive yields down."

The demand for higher yields helped the US government raise $20bn on Wednesday from the sale of 10-year notes. The bond issue reportedly received record demand from investment funds and foreign central banks.

"The auction process shows large bidder participation. Those bidders are mostly international buyers who need the yield," said Tom Tucci, head of Treasuries trading at CIBC in New York.