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Irish government woes muddy Brexit, pin euro zone yields lower
November 28, 2017 / 8:53 AM / 15 days ago

Irish government woes muddy Brexit, pin euro zone yields lower

* Euro zone, British yields broadly lower on Irish jitters

* Ireland-Germany bond yield spread close to one-month highs

* Fed chair nominee Powell expected to tow the Yellen line

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Abhinav Ramnarayan

LONDON, Nov 28 (Reuters) - Euro zone government bond yields were pinned to recent lows on Tuesday as the Irish government teetered on the brink of collapse, casting a shadow over a key Brexit summit next month.

A snap election looms in Ireland after the opposition party propping up the minority government said the deputy prime minister’s refusal to quit would force the country to the polls next month.

A motion of no confidence in the minister in question, Frances Fitzgerald, is due at 2000 GMT on Tuesday unless she quits.

Ireland is set to play a major role in December’s Brexit meeting, telling EU leaders whether it believes sufficient progress has been made on the future of the border between EU-member Ireland and the British province of Northern Ireland.

“I think the issue is already contributing to the yield levels and if we have snap elections and then if a Brexit deal is in jeopardy then it will have a major impact,” said DZ Bank analyst Sebastian Fellechner.

“It could lead to a risk-off environment and be a disruptive factor in this very calm market,” he said.

Most euro zone bond yields edged lower in early trade, with 10-year German yields -- the benchmark for the region -- dropping to 0.33, barley 2 basis points off the November lows.

Ireland’s bond yield spread over Germany’s widened a touch to 24 bps, just a shade off the one-month high hit last week.

The yield on 10-year British Gilts also dropped to 1.245 percent, a shade off a 2-1/2 week low hit on Monday.

Competing news that British banks could cope with a “disorderly” Brexit without needing to curb lending or be bailed out by taxpayers pushed UK stocks higher.

Outside of Europe, investors will also pay close attention to Federal Reserve chair nominee Jerome Powell, with his confirmation hearing expected later on Tuesday.

Powell has already made remarks supportive to current Fed chief Janet Yellen, saying the Fed’s easy money policy has paid off by bringing millions back to work without any clear sign it has thrown markets off kilter.

“Overall this fits with the view that Powell will not differ dramatically from Yellen on monetary policy but is likely to be keener than her to reduce the regulatory burden on banks,” Rabobank strategists said in a note.

It is also an important week for tax overhaul plans in the world’s biggest economy.

A U.S. Senate Republican tax bill strongly backed by President Donald Trump faced potential opposition on Monday from two Republican lawmakers who could prevent the sweeping legislation from reaching the Senate floor.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Reporting by Abhinav Ramnarayan Editing by Jeremy Gaunt`

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