Longer dated yields are usually higher than short dated ones since investors charge more for lending for longer periods of time. Any inversion, where longer dated yields are lower, traditionally implies the market is pricing in low returns as the result of a probable economic slowdown.

By late trade in New York on Monday, 10-year notes yielded 4.742 per cent, their highest since June 2004 and just 2.5 basis points below two-year yields.

Monday’s move was an extension of “curve flattening” trade unwinding which began last week after the inversion lost momentum with 10-year yields peaking about 16bp below two-year yields.

UK government bonds were marking time ahead of the Bank of England’s decision on interest rates later in the week.

Hopes of a cut have been damped by a string of data released in in the past couple of weeks showing some economic strength.

While 25 of the 40 economists polled by Reuters still think the next move in rates will be down, the market may have to wait until May for a decision, when the Bank’s rate setting committee will be armed with the next quarterly inflation report.

The yield on the two-year gilt was up 1.3bp at 4.399 per cent and the 10-year yield was down 0.1bp at 4.257 per cent.

European government bonds saw some small price gains, with yields slipping back from last week’s steady increases.

Eurozone data showed a drop in retail sales last month, illustrating the conundrum of lacklustre consumer activity even as exports and business spending accelerate.

The data contrasted with strong manufacturing and services numbers last week that had helped raise expectations of further interest rate rises to come from the European Central Bank. Germany has begun bookbuilding for its first inflation-linked bond

The yield on the benchmark 10-year Japanese government bond rose 1.5bp to 1.630 per cent amid mounting speculation that the Bank of Japan would end quantitative monetary easing on Thursday.

JGBs also reacted to Friday’s sharp rise in the 10-year US Treasury yield.

But trading volumes remained thin with investors reluctant to take large bets ahead of Thursday’s decision. Many analysts still think the BoJ will wait until next month before ending quantitative easing.