By Christopher Whittall and Min Zeng 

Investors piled into safe-haven sovereign debt on Monday, pushing the yield on 10-year U.K. government bonds below 1% for the first time and the yield on the U.S. 10-year note down near a record low amid continued fallout from Britain's vote to exit the European Union.

The 10-year gilt's yield fell by around 0.15 of a percentage point to a record close of 0.95% as prices declined, according to Tradeweb. In recent trading, the yield on the 10-year Treasury note was 1.469%, according to Tradeweb, from 1.577% Friday. Yields fall as bond prices rise. The yield's record closing low was 1.404% in July 2012.

German bunds and other developed market debt also gained on the broad-based risk aversion sweeping markets following Thursday's "Brexit" vote, which has sent investors out of equities and riskier corporate bonds and into the safety of sovereign debt and gold.

"It is a flight-to-quality effect," said Olivier De Larouzière, head of interest rates at Natixis Asset Management.

The global selloff and concerns over economic growth have led investors to predict rate cuts from some countries and a further postponement for the U.S. Federal Reserve in raising rates, further influencing how government debt trades.

The sharpest drops so far have been in U.K. government bond yields, which accounted for roughly a quarter of all European sovereign bond trading volumes on Monday, according to MarketAxess, a trading platform. The yield on 10-year gilts has now dropped roughly 0.4 of a percentage point since Britain voted Thursday to leave the EU.

"Also on Monday, the British pound sank to its lowest level in over 30 years and investors dumped U.K. midcap stocks and banking shares, extending the steep falls at the end of last week.

"Because the U.K. is the epicenter of the uncertainty, it makes sense the rally [in gilts] is so strong," said Russell Silberston, a fund manager at Investec Asset Management.

In the run-up to the referendum, investors had been split on which direction gilts would trade if Britain voted to leave the EU.

Some argued international investors would shun all U.K. assets and sell gilts, while others predicted British government debt would keep its haven status and rally as funds continued to dial back risk. So far, the haven argument has won.

Now gilt investors are working out how the Bank of England will react. The BOE faces a choice between lowering interest rates to provide relief to the economy from any adverse consequences of exiting the EU, or raising them to defend the pound.

According to one key metric, investors are now expecting a rate cut in the coming months. The instantaneous overnight index swap forward curve, a measure published daily by the Bank of England based on a type of traded derivative, suggested investors as of the end of Friday expected a 0.25 percentage point cut in interest rates by October.

Gilts would benefit further from lower interest rates, while tighter monetary policy would likely hit the market.

"Gilts have outperformed partly because the markets are pricing in expectations of the Bank of England cutting interest rates," said Mike Riddell, a portfolio manager at Allianz Global Investors.

Investors are also weighing how the market's reaction to the British vote will affect what the U.S. Federal Reserve does. There is a growing belief that the Fed may not be able to raise interest rates this year, especially if the U.S. growth momentum slows down.

Interest rate futures suggest some investors have started to bet that the Fed may need to reverse its tightening policy, showing how anxious some are to the potential fallout from Brexit.

The Brexit vote "provides rationale for central banks to run a looser policy," said Steven Major, global head of fixed-income research at HSBC Holdings PLC. "For the U.S., the hikes have been correctly priced-out."

The yield on the two-year Treasury note, highly sensitive to the Fed's policy outlook, was recently at 0.580%, down from 0.653% Friday.

U.S. yields are also falling as lower returns overseas push investors to look to one of the few developed economy markets still offering income.

Aaron Kohli, interest-rate strategist at BMO Capital Markets, said it won't surprise him to see U.S. bond yields hit record lows if riskier assets, such as banking stocks in Europe, continue to take a hit from the fallout.

Also Monday, the yield on 10-year German debt was around 0.05 percentage point lower at minus 0.11%. In Japan, the 10-year government bond was yielding negative 0.199%.

Still, Mr. Kohli advises clients to wait for a pullback in the bond market to buy at cheaper price levels, or more attractive yields.

Write to Christopher Whittall at christopher.whittall@wsj.com and Min Zeng at min.zeng@wsj.com

(END) Dow Jones Newswires

June 27, 2016 13:43 ET (17:43 GMT)