* French two-year yields set for biggest weekly fall in
almost five years
* Biggest monthly fall in over four years as election risks
* Bund yields set for biggest weekly rise since early March
* Euro/dollar one-week implied volatility down sharply
(Updates with details)
By Dhara Ranasinghe
LONDON, April 28 France's two-year bond yields
were set to end April with their biggest slide in over four
years on Friday, a sign that investors see little risk of
anti-euro Marine Le Pen winning the final round of France's
Centrist Emmanuel Macron, who beat Le Pen into second place
in Sunday's first round, is expected to easily beat her in the
May 7 run-off, according to latest opinion polls.
As worries over France and the potential break-up of the
euro zone have receded in the past week, France's bond market
has racked up some its strongest gains in years.
The two-year government bond yield, which moves
in the opposite direction to the price, was on track to finish
the month down about 12 basis points, its biggest drop since
It was trading on Friday at minus 0.52 percent, and set for
its biggest weekly fall in almost five years with a drop of 14
French 10-year bond yields were set for their
biggest monthly fall since June 2016, down 20 basis points.
"The reduction in the Le Pen victory risk reduces
redenomination risks," said Alessio de Longis, a portfolio
manager at OppenheimerFunds.
"We're not completely out of the woods but the consensus is
that those who voted for (conservative Francois) Fillon and
(far-left Jean-Luc) Mélenchon will vote for Macron."
French bond markets were battered earlier this year as
investors fretted that Le Pen's strong showing in opinion polls
raised euro zone break-up risks.
That not only boosted demand for safe-haven German bonds but
also hammered peripheral bond markets viewed as vulnerable to
any fracturing of the single-currency bloc.
Southern European bond yields have all seen steep falls this
week. Portugal's 10-year yield was on track for
its biggest monthly fall since July 2015, tumbling over 40 bps.
By contrast, German yields have risen not just as political
risks in France fade but also as investors turn their attention
to a pick-up in inflation and potential changes to ECB monetary
German 10-year bond yields were set to end the
week 7 bps higher - their biggest weekly rise since early March.
An ebbing in French political risks was also felt in
Euro/dollar one-week implied volatility - derived
from the price of options used to hedge against big price swings
in the exchange rate - fell over 12 percentage points on the
week, the biggest fall on record.
(Editing by Jemima Kelly and Catherine Evans)