* Yields dip as market wary of populist surge in Dutch vote
* France's 10-year govt bond yield spread to Germany edges
* Investors watch for hawkish signals from U.S. policymakers
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Abhinav Ramnarayan
LONDON, March 15 Euro zone government bond
yields dipped on Wednesday with investors reluctant to take
major steps as Dutch voters went to the polls and the U.S.
Federal Reserve looked set to deliver its first interest rate
hike of the year.
The Dutch parliamentary elections are seen as a test of
anti-establishment and anti-EU sentiment in the single currency
bloc ahead of votes later this year in France and Germany, the
two biggest economies in the euro zone.
A strong turnout for the PVV (Party for Freedom) of
anti-Islam and anti-EU firebrand Geert Wilders may suggest a
strengthening of far-right sentiment in the euro zone. The
latest opinion polls put the centre-right VVD party of Prime
Minister Mark Rutte ahead of the PVV by 3 percentage points.
"The repercussions for France are the key aspect of this
election, and if we see that the populists are keeping their
momentum that will be reflected in French government bonds,"
said DZ bank strategist Christian Lenk.
France's 10-year government bond yield rose 2 basis points
in early trade to 1.12 percent before receding again, though the
spread over Germany remained steady at around 66 basis points.
Most euro zone bond yields, having risen in early trade,
were down 1-2 basis points. Germany's 10-year government bond,
the benchmark for the region, saw its yield fall 1 bp to 0.44
The gap between the 10-year borrowing costs of France and
Germany has spiked in recent months from a September trough of
21 basis points, fuelled by the progress of anti-euro far-right
leader Marine Le Pen ahead of presidential elections starting in
Le Pen and her FN party want to take France out of the
single currency. Her bid for the Elysee Palace was given a boost
this week after magistrates put one of her rivals, Francois
Fillon, under formal investigation on suspicion of embezzling
Concerns over the Dutch election kept euro zone bond yields
compressed despite the almost nailed-on certainty of a rate hike
in the U.S. later on Wednesday.
In addition, investors will be keeping a close eye on
whether or not U.S. policymakers signal tighter policy for the
rest of the year.
"A 25 basis point rate hike is fully discounted following
the sharp shift in official communication since Yellen's
testimony mid-February. Accordingly, guidance regarding the
subsequent rate path will determine the market reaction,"
Commerzbank analysts said in a note.
Three rate hikes are priced in and there is a distinct risk
this will move higher yet again, according to Commerzbank.
Ten-year U.S. Treasury yields were at 2.59 percent on
Wednesday, close to the 2017 high of 2.63 percent.
(Editing by Hugh Lawson)