* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By John Geddie
LONDON, Oct 27 (Reuters) - The premium investors demand to hold Spanish government bonds over benchmark German peers held near one-month lows on Friday ahead of parliamentary votes for Madrid to impose direct rule over Catalonia.
The relative calm in markets is in contrast to the bouts of volatility seen since Catalonia staged its independence referendum on Oct. 1, ruled illegal by Spanish courts.
The European Central Bank’s announcement on Thursday that it will extend its monetary stimulus programme until at least next September has lifted all assets.
Investors are looking beyond what could be a tumultuous few days in Spain towards the prospect of fresh leadership elections in Catalonia that might reduce the power of secessionists.
“For investors, it is a case of waiting to see exactly as and when an election is called, whether that is the current Catalan government calling it themselves or having it imposed upon them by Madrid,” Rabobank strategist Matt Cairns said.
“The market is likely to welcome that because the ability for (Catalan leader Carles) Puigdemont to hold on to power looks tenuous at best.”
Puigdemont on Thursday said he would not hold a new regional election to break the deadlock, and that it was now up to the Catalan parliament to move forward with a mandate to break from Spain.
The Spanish Senate meets on Friday to approve the take-over of Catalonia’s institutions and police, and give the government in Madrid the power to remove the Catalan president.
Spanish 10-year bond yields fell 3 basis points to 1.53 percent on Friday, having fallen 10 bps on Thursday in their biggest daily drop in six months.
That kept the gap with German peers - which fell 2 bps to 0.43 percent on Friday - to around 110 bps, the tightest level in around a month.
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Editing by Peter Graff