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CORRECTED-UPDATE 1-France's 10-year bond yield hits one-month low as political jitters ease
February 27, 2017 / 8:46 AM / 7 months ago

CORRECTED-UPDATE 1-France's 10-year bond yield hits one-month low as political jitters ease

(Corrects 7th paragraph to show French candidates failed to reach an alliance)

* French election jitters ease, yields at one-month low

* Two polls show Macron easily beating Le Pen in runoff

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

By Dhara Ranasinghe

LONDON, Feb 27 (Reuters) - French 10-year bond yields fell to a one-month low on Monday, tightening the gap against German peers, as latest polls showed centrist candidate Emmanuel Macron would easily beat the far-right’s Marine Le Pen in May’s presidential election runoff.

Unease at Le Pen’s strong showing in France’s presidential race has hurt French government bonds in recent weeks, with her anti-euro stance unnerving investors, but developments in recent days have calmed some of those jitters.

A poll released on Sunday by Odoxa/Dentsu-Consulting showed Macron, a former economy minister running without the support of any traditional political party, would beat Le Pen in the runoff with 61 percent of the vote, versus 39 percent for her.

Another poll by Figaro/LCI showed Macron winning the runoff by 58 percent to 42 percent for Le Pen.

The election is held in two stages and Le Pen is expected to lead in the first round of voting in April.

The pollsters said Macron had been boosted by last week’s alliance with centrist Francois Bayrou, which has enabled him to move ahead of conservative candidate Francois Fillon.

Concerns about Le Pen gaining ground were also eased after French Socialist presidential candidate Benoit Hamon and hard-left candidate Jean-Luc Melenchon inidcated on Sunday that they have failed to agree on a possible alliance in the upcoming presidential election.

“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.”

France’s 10-year bond yield fell 2.5 basis points to a one-month low of 0.90 percent, 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.

News late on Friday that the Netherlands’ future relationship with the euro will be comprehensively debated by its parliament following an election in March had little immediate market impact.

With the exception of France, most euro zone bond yields were little changed.

Analysts said there was some caution ahead of a speech by U.S. President Donald Trump to a joint session of Congress on Tuesday, in which he is expected to unveil some elements of his plans to cut taxes.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Editing by Catherine Evans

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