August 24, 2017 / 11:04 AM / a year ago

UPDATE 2-Cautious Draghi, raucous Trump keep German yields near eight-week low

* Trump threatens government shutdown

* Fitch warns of U.S. rating dangers

* Draghi to avoid policy discussion at Jackson Hole

* Euro zone periphery govt bond yields (updates prices to close)

By John Geddie

LONDON, Aug 24 (Reuters) - German bond yields were pinned near eight-week lows on Thursday, with demand for the top-rated debt supported by President Donald Trump’s threat to shut down the U.S. government and expectations for a cautious message from a meeting of central bankers.

Congress will only have days to approve spending measures and keep the government open on their return in early September, while also facing a deadline to raise the government’s borrowing cap.

Trump said Tuesday he would be willing to risk shutting down government to secure funding for a wall along the U.S.-Mexico border.

Fitch Ratings said on Wednesday that a failure to raise the debt ceiling in a timely manner would prompt it to review the United States’ AAA sovereign rating “with potentially negative implications”.

Yields on Treasury bills due in early October rose on Thursday on concerns that payments on the debt could be delayed if lawmakers fail to raise the debt ceiling before the government runs out of funds, which is expected in late September.

Bond yields - which move inversely to prices - fell on this uncertainty and were also supported by expectations that central bankers would tread carefully at a meeting in Jackson Hole, Wyoming which starts on Thursday.

Sources told Reuters last week that ECB President Mario Draghi would not deliver any new messages in his remarks on Friday and was keen to hold off policy discussions until autumn .

“Over the last couple of years, there have been many discussions about the U.S. debt ceiling ... but with the administration of Donald Trump it brings more uncertainty,” said Vincent Juvyns, global market strategist at JP Morgan Asset Management.

“From Jackson Hole, markets are not expecting much and if anything maybe a dovish tone.”

German 10-year bond yields were a tad higher on Thursday at 0.38 percent, having briefly touched a fresh eight-week low of 0.37 percent. Other euro zone yields were broadly unchanged, steadying after Wednesday’s sharp fall.

U.S. yields were just 2 basis points above the 2.16 percent level struck last week, which was the lowest since June 27. Draghi on Wednesday cautioned against hasty policy responses, saying that while unconventional monetary policy was a success, gaps in understanding the relatively new tools remained.

“A key driver of the last leg of the rally has been a revision of the market’s hawkish ECB view and we expect this rally to continue for much of the period between now and the September meeting as investors re-balance their portfolio,” Mizuho’s head of euro rates strategy Peter Chatwell said.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=

Reporting by John Geddie; Editing by Larry King and Toby Chopra

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