October 23, 2019 / 7:49 AM / 21 days ago

Eurozone bonds rise, Swiss bonds outperform, as Brexit uncertainty returns

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

By Olga Cotaga

LONDON, Oct 23 (Reuters) - Eurozone government bonds were moving higher on Wednesday with safe-haven German Bunds leading the way, as investors grew more wary about how and when Britain will leave the European Union.

Swiss government bonds surged the most, reflecting safe-haven demand in the euro area.

British lawmakers handed Prime Minister Boris Johnson the first major parliamentary victory of his premiership on Tuesday by signalling their support for the Brexit deal he agreed with the European Union last week.

But that was overshadowed minutes later when parliament defeated him on his timetable to rush the legislation through the House of Commons in just three days, making ratification of his deal by the Oct. 31 deadline almost impossible.

Talk of an early general election to break the impasse and of a possible Brexit extension dominated market participants’ decisions on Wednesday as they waited for European leaders to respond to Britain’s request for a delay.

European Council President Donald Tusk said on Tuesday that he would recommend that the 27 other EU member states approve a delay until next year. But a French diplomatic source said France was ready to grant only a few days, ruling out any extension beyond that.

German 10-year Bund yields were down 3.1 basis points at -0.40%, with the rest of the main European countries also down by 3 to 4 bps.

Swiss government bonds were down the most by 105 bps at -0.61%, a three-day fall, as safe-haven Swiss assets perform strongly in times of uncertainty.

“There is a lot of noise and uncertainty for the time being,” said Rainer Guntermann, rates strategist at Commerzbank.

“I won’t be surprised to see more support to the bonds and spreads to tighten further,” Guntermann said, adding that further support this week is likely to come from big French government bond redemptions and coupons, which will most likely be reinvested in the market.

This should be “very supportive,” he said.

Elsewhere, new negotiations with the European Union could be an alternative to imposing tariffs on automotive imports next month, U.S. Commerce Secretary Wilbur Ross has suggested in an interview with the Financial Times published on Wednesday.

Earlier this week White House economic adviser Larry Kudlow expressed optimism about ongoing U.S.-China trade talks, and said that tariffs scheduled for December could be withdrawn if negotiations continue to go well. (Reporting by Olga Cotaga Editing by Nick Tattersall)

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