* All eyes on Saturday Brexit vote in UK
* Bond yields rise again
* Analysts expect rally if deal rejected (Updates prices to close, adds quote, Draghi comment)
By Yoruk Bahceli
LONDON, Oct 18 (Reuters) - Euro zone bond yields rose on Friday, a day before the British parliament is due to vote on whether to approve an agreement on the United Kingdom’s departure from the European Union.
Yields have generally pushed higher since Irish and British leaders said on Oct. 10 they saw a path to a Brexit deal, boosting risk appetite and weakening demand for safe-haven assets such as bonds.
EU leaders unanimously backed a new Brexit agreement with Britain on Thursday, but now British Prime Minister Boris Johnson faces a battle to secure parliament’s backing if he is to take his country out of the European Union on Oct. 31.
David Zahn, head of European fixed income at Franklin Templeton, said investors would be keeping a close eye on the reaction of sterling and gilt yields on Monday.
“Some of these potential moves in gilt yields might be very short term,” he added. “However, we should remember that global growth is slowing; growth in the United Kingdom has slowed and growth in Europe has also slowed down considerably.”
In late Friday trade, 10-year benchmark bond yields were around 2 basis points higher on the day.
Germany’s 10-year Bund yield was at -0.39%, having touched its highest since late July on Thursday. It is up 18 bps so far this month, poised for the biggest monthly rise since early 2018.
Goldman Sachs said it thought the Brexit deal would get through the British parliament and raised its estimate of Brexit with a deal on Oct. 31 to 65% from 60%. It cut its odds on a no-deal departure to 10% from 15% and kept unchanged its 25% probability of no Brexit.
European Commission President Jean-Claude Juncker opposed extending the Brexit deadline past Oct. 31, but Donald Tusk - who heads the European Council, which includes the EU heads of state or government - refused to rule out an extension. EU member states would need to agree an extension.
“It looks like there won’t be a no-deal. It looks like the European leaders look open to an extension, despite what Juncker said,” said Rabobank fixed income strategist Lyn Graham-Taylor.
UniCredit analysts said in a client note they expected 10-year bond yields to fall about 10 bps if parliament rejects the deal, as this would boost demand for safe-haven bonds.
But they added that yields would rise less than 10 bps with a deal, “given the continued weak outlook for global growth and the accommodative stances of the Fed and particularly the ECB”.
China’s economic growth slowed more than expected in the third quarter, to 6.0% year-on-year, the slowest pace in more than 27 years, data showed on Friday.
Elsewhere, European Central Bank chief Mario Draghi said there were “mild signs” of overvaluation in the bloc’s financial and property markets, creating a risk for stability at a time when the economy is slowing. (Reporting by Yoruk Bahceli; Additional reporting by Elizabeth Howcroft and Dhara Ranasinghe; Editing by Larry King and Pravin Char)