French bond yields fall as fears ease over Le Pen victory
French 10-year bond yields hit a one-month low on Monday, pushing other euro zone sovereign yields lower, while a more cautious mood hung over world stock markets and the dollar, both of which struggled for clear direction.
The fall in French bond yields came as polls showed centrist Emmanuel Macron would easily beat far-right candidate Marine Le Pen in May's presidential election runoff, relieving some fears that have built up in recent weeks among investors.
"Macron gained further support in the polls," said DZ Bank rates strategist Rene Albrecht. "Another important point is that it looks like Hamon and Melenchon won't merge, so there is less of a chance that we will have a left-wing candidate that could outpace Macron or Fillon."
Hard-left candidates Benoit Hamon and Jean-Luc Melenchon have said they are discussing cooperation in their bid for the presidency but are seen struggling to find a common platform.
World stocks and the dollar trod water, while US Treasury yields recovered some ground following last week's decline, the steepest weekly fall in months.
In Europe, the French-led fall in bond yields and tightening of spreads over Germany were the most notable moves at the start of a week in which US President Donald Trump's State of the Union address on Tuesday will loom large.
Trump is expected to unveil some elements of his plans to cut taxes in his joint address to Congress.
France's 10-year bond yield fell 2.5 basis points to a one-month low of 0.90pc, outperforming euro zone peers. Safe-haven German bond yields edged higher, narrowing the gap between French peers to around 70 basis points, its tightest level in just over a week.
Fears about the French election had pushed the yield gap to around 84 bps last week - the highest since late 2012.