* French election jitters ease, yields at one-month low
* Polls show Macron easily beating Le Pen in runoff
* Socialists candidates fail to agree on alliance
* Italian yields fall as prospect of snap Italian elections
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
(Updates prices for close)
By Dhara Ranasinghe
LONDON, Feb 27 French 10-year bond yields fell
to a one-month low on Monday, tightening the gap with German
peers on further signs that centrist candidate Emmanuel Macron
is the clear favourite in France's closely-watched presidential
Italian yields also hit one-months lows, as the prospects of
snap elections in Italy dimmed after former prime minister
Matteo Renzi said on Sunday it was up to his successor to decide
whether Italy should hold its next national election before the
term of the current legislature ends in early 2018.
Polls released over the last few days have shown Macron, a
former economy minister running without the support of any
traditional political party, extending his lead over the
far-right's Marine Le Pen in a May presidential election runoff.
Both would first have to get through the first round in
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.
The election is held in two stages and Le Pen is expected to
get more votes in the first round of voting than Macron or
conservative Francois Fillon.
But Macron is seen as ultimately coming out on top and his
bid has been boosted by last week's alliance with centrist
Concerns about Le Pen gaining ground were also eased after
French Socialist presidential candidate Benoit Hamon and
hard-left candidate Jean-Luc Melenchon indicated on Sunday that
they had failed to agree on a possible alliance.
Christophe Caresche, head of the reformist branch of the
Socialist party in the lower house of parliament, meanwhile told
a newspaper on Sunday he would endorse Macron.
"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 as much as 4 basis points
to a one-month low of 0.88 percent, outperforming
top-rated German Bund yields, which were slightly higher on the
day at 0.20 percent.
That pushed the French/German yield gap to around 68 bps,
its tightest level in over a week and down from around 84 bps
last week -- the widest since late 2012.
Italy's 10-year bond yield fell to a one-month low at 2.13
In addition to easing French jitters, analysts said
expectations for snap Italian elections, viewed as another key
risk, had fallen after Renzi's weekend comments.
"My understanding is that the news from French domestic
politics and polls are behind this re-pricing of (French bond)
OATs, as are the more distant prospects for Italian elections --
now more likely to take place in autumn at the earliest, versus
as soon as June that was feared before the weekend," said
Commerzbank strategist David Schnautz.
Renzi, who quit as premier in December, had earlier called
for elections to be brought forward to June, eager for a swift
return to office. With that in mind, he wanted to wrap up his
ruling Democratic Party's (PD) leadership vote in early April to
enable a snap ballot.
But the PD said on Friday that it would hold its leadership
contest only on April 30, a decision that effectively rules out
any snap national election in June.
Italy on Monday sold 10 billion euros at a auction, at the
top of a planned issuance range.
(Editing by Jeremy Gaunt)