(Updates prices, adds latest French poll)
By John Geddie
LONDON Feb 21 Rebounding euro zone growth data
gave investors another reason to sell French bonds on Tuesday as
the prospect of the European Central Bank winding down its
monetary stimulus combined with nervousness ahead of the French
Investors have been rattled by the prospect of anti-euro,
far-right leader Marine Le Pen staging another political
surprise in the race for the presidency, with a poll on Monday
showing her closing the gap on her centrist
Yields on French bonds rose 6 basis points to 1.11 percent
on Tuesday morning.
The bulk of that move came after data showed euro zone
business growth at its fastest in nearly six years, further
evidence for those in the ECB calling for the withdrawal of
stimulus that has driven up asset prices in recent years.
"It seems that, more and more, investors just want to get
out of French bonds and are trying to take advantage of any
chance to sell them," DZ Bank strategist Daniel Lenz said.
More polls on Tuesday kept French bonds on the defensive. An
Elabe poll showed the lead of centrist Emmanuel Macron and
conservative Francois Fillon over Le Pen in head-to-head polls
shrinking to 18 and 12 points respectively.
That suggests the anti-EU Le Pen may have more chance of
springing a surprise if, as the polls also suggest, she makes it
through to the second round of the elections in May.
While French bond yields were the fastest risers on Tuesday,
most other euro zone equivalents climbed around 3 bps.
Short-dated German bonds though - in high
demand due to a shortage created by the European Central Bank's
bond-buying scheme - saw yields sink to a new record low with
analysts saying investors were parking their cash in one of the
safest assets in the euro zone before French elections.
French two-year bond yields rose to minus 0.40 percent
, their highest since June. That pushed out the gap
over their German equivalents to about 44 basis points, the
widest since the 2012 debt crisis.
Meanwhile, the cost of insuring French government debt
against default rose on Tuesday to its highest level in more
than three years.
Greek bonds were one of the few in demand on Tuesday after
Athens and its international lenders agreed on Monday to let
teams of experts work out new reforms to Greek pensions, income
tax and labour market that would allow Athens to eventually
qualify for more cheap loans.
The agreement is a compromise between conflicting views of
the IMF, the euro zone and Greece as to how to make the economy
more efficient and public finances sustainable.
Yields on short-dated Greek bonds fell more than 1
percentage point to a three-week low of 7.99 percent
"Yesterday's Eurogroup change of heart to put more emphasis
on deep reforms is key, in our view, implying reduced divergence
with the IMF ... and with it much reduced chances that the third
bailout will be suspended," economists at Barclays said in a
(Editing by Nigel Stephenson and Hugh Lawson)