* Bond yields rise as ECB comes back into frame
* Safe-haven bonds dented after Dutch election test
* France sells over 8 billion euros of bonds, pushing yields
* Fed displays caution despite delivering first hike of 2017
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
(Updates prices, adds quote, move in UK yields)
By Abhinav Ramnarayan and Dhara Ranasinghe
LONDON, March 16 Euro zone government bond
yields rose on Thursday, reversing early falls, as a reduction
in political risks following a Dutch election allowed investors
to look ahead to the potential implications for monetary policy.
Heavy supply also weighed on bond prices, pushing yields up.
France sold over 8 billion euros of nominal bonds while Spain
sold 4.8 billion euros of debt.
Most euro zone bond yields fell in early trade and the
French yield spread over German benchmarks narrowed sharply as
weaker-than-expected results for populist Geert Wilders in
Wednesday's Dutch election eased concerns about a victory for
the far right in French presidential elections in April and May.
However, the spread widened back to where it started, partly
because French bonds were caught up in a broader sell-off in
euro zone government bonds.
Focus also snapped back to other factors - not least
expectations that the European Central Bank will move away from
its ultra-loose monetary policy stance if political hurdles are
"If these elections go by without any shocks, it means the
potential next step for the ECB is likely to be less stimulus
rather than more because as (ECB President Mario) Draghi has
acknowledged, the European economy has been strong," said Gilles
Pradère, senior fixed income manager at RAM Active Investments.
Euro zone government bond yields were up 4-7 basis points
higher on the day, while the spread between French and German
government bond yields was a touch wider on the day at 64 basis
Earlier, the French/Germany yield spread hit its narrowest
in two weeks after results overnight showed Dutch centre-right
Prime Minister Mark Rutte's VVD party taking 33 seats in the
parliamentary election to 20 for Wilders' PVV.
In another day of volatile trade, Germany's 10-year Bund
yield was up 4 bps at 0.45 percent, having fallen as low as 0.36
"At the end of the day, we are seeing a risk-on move in
global markets," said Philip Shaw, chief economist at Investec.
French government bonds were seen as vulnerable if the PVV
had emerged as the biggest party, with French far-right leader
Marine Le Pen expected to make it to a final round run-off.
The latest opinion poll suggests Le Pen will win the first
round with 26.5 percent of the vote but centrist Emmanuel Macron
is seen winning the second round comfortably.
The upward move in bond yields also came after the U.S.
Federal Reserve delivered its first rate hike of the year on
Wednesday, albeit having prepared the market well in the days
However, U.S. policymakers did not flag any plan to
accelerate the pace of monetary tightening, prompting some
analysts to brand it a "dovish hike".
Markets are pricing in two more rate hikes this year and
three in 2018, analysts said.
There was also some pressure from selling in the UK bond
market following a Bank of England meeting.
British 10-year gilt yields hit a one-month high at 1.29
percent following news that a BoE England policy
maker unexpectedly voted to raise rates.
(Editing by Alison Williams)