LONDON, Jan 30 (Reuters): Euro zone bond yields held firm on Wednesday after British lawmakers voted down a proposal in parliament that aimed to prevent a potentially chaotic 'no-deal' Brexit which markets appear reluctant to price in.
Bond investors paused for breath following the vote, and ahead of key euro zone data, the Federal Open Markets Committee press conference, and the resumption of trade talks between China and the US, all due later on Wednesday.
British lawmakers on Tuesday instructed Prime Minister Theresa May to reopen a Brexit treaty with the European Union (EU) to replace a controversial Irish border arrangement - and promptly received a flat rejection from Brussels.
At the same time, parliament rejected a proposal to stop a potentially chaotic 'no-deal' exit by making May ask Brussels for a delay if she cannot get a deal past lawmakers.
The euro zone bond market has grown a little immune to Brexit noise, said Christoph Rieger, rates strategist at Commerzbank.
"Given the UK amendments and what (European Council President Donald) Tusk said, this combination increases the risk of a disorderly Brexit," he said.
"The market is reluctant to price this scenario. "The market still maintains its faith that reason will prevail. This morning, it looks quite a fantasy to come up with such a scenario," said Rieger.
Investors bought German Bunds in the run-up to Tuesday's vote. German 10-year Bund yields were last trading at 0.192 per cent, close to levels traded late on Tuesday.
British 10-year government bond yields fell 1.4 basis points to 1.255 per cent in early trade. But even as Goldman Sachs, as well as others, saw the chance of a no-deal Brexit increasing, euro zone bond yields were largely unchanged.
Investors are also focused on upcoming euro zone data and the US Federal Reserve meeting. "We expect that the meeting will be an opportunity for (Fed chief Jerome) Powell to drive home the Fed's pause message," wrote Mizuho strategists in a note.
