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British government bonds rose for a fourth week, with two- and 10-year yields dropping to record levels, as investors sought safer assets after European Central Bank loans failed to soothe turmoil in euro-area debt markets.

Gilts completed a second year of gains, returning 17 percent on average and outperforming German bunds and US Treasuries.

Ten-year yields fell on Saturday to the lowest levels since Bloomberg started tracking them in 1989 as an industry report showed home prices declined, adding to signs the recovery is faltering. The pound completed a third yearly advance versus the euro after 15 European summits in two years failed to stop the debt crisis from spreading.

The outlook for gilts “really depends on what happens with the European situation,” said Vatsala Datta, an interest-rate strategist at Lloyds Bank Corporate Markets in London.

“If we get something on a positive bent then we might see yields bounce back above 2 percent. But on relative terms, I think they will be supported against Treasuries and bunds.”

British bond yields have fallen every week since Standard & Poor’s put 15 euro nations on watch for a possible downgrade on Dec. 5, including AAA-rated Germany and France. S&P said it placed the countries on review as “systemic stress in the euro zone has risen in recent weeks.”

Concern Italy will struggle to repay its debt pushed its 10-year yields above 7 percent last week, boosting demand for the safety of gilts. It raised less than its maximum target at an auction on Thursday, even after the European Central Bank provided banks with a record 489 billion euros ($633 billion) of three-year loans.

The 17 percent return from gilts last year was the most since 1998, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. German securities, Europe’s benchmark, gained 9.6 percent, Treasuries rose 9.8 percent and Italian debt tumbled 5.7 percent, the indexes show.

Gilts were boosted on Saturday as the Nationwide Building Society said the average cost of a British home fell 0.2 percent in December, the first monthly drop since August.

The Office for Budget Responsibility, Britain’s fiscal watchdog, cut its forecasts for economic growth last month to reflect the turmoil in Europe, the biggest market for British goods sold abroad.

The deteriorating economic outlook has prompted the government to raise its planned gilt issuance for the 12 months through March by 6.8 percent to 178.9 billion pounds. The first sale of 2012 is an auction of five-year notes on Wednesday.

The Bank of England has supported the economy and the bond market with 249 billion pounds of gilt purchases, so-called quantitative easing, since March 2009. The European Central Bank has failed to replicate such measures in the euro zone.

“Bunds are under threat because Germany may be the ultimate payer for the other countries,” Lloyds’s Datta said.

“On a relative basis, prospects of further QE in the UK will keep gilts supported.”

The pound strengthened 2.6 percent against the euro last year. Sterling rose 0.2 percent to 83.57 pence per euro last week. The British currency weakened 0.3 percent last week to $1.55, and dropped 1.7 percent to 119.64 yen.

Sterling was little changed in 2011, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed nation’s currencies. The yen was the best performer, gaining 5.2 percent, and the dollar appreciated 0.9 percent.

Bloomberg