* French bond yield hits one-month low
* Sentiment improves after Bayrou-Macron alliance
* French/German 10-year yield gap down from multi-year highs
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, Feb 23 The extra return investors demand
to hold French rather than German debt shrank from multi-year
highs on Thursday as a new centrist pact in France's
presidential election race eased market concerns about
far-rightist Marine Le Pen gaining ground.
Influential centrist Francois Bayrou on Wednesday decided
not to run in the French election and struck an alliance with
candidate Emmanuel Macron that may boost the latter's chances in
the tight race.
Markets are nervous about Le Pen's anti-euro stance, and
polls earlier this week showing her narrowing the gap with
centrist contenders had rattled investors in the wake of the
populist backlash in votes in Britain and the United States last
France's presidential election takes place over two rounds,
scheduled for April and May, and the National Front's Le Pen is
widely tipped to go through to the second-round runoff but then
A poll on Wednesday showed Macron was seen beating Le Pen in
the runoff by 60 percent to 40 percent.
"Yesterday's developments in France were positive for French
bonds and broader risk appetite," said Orlando Green, European
fixed income strategist at Credit Agricole in London.
France's 10-year bond yield fell as much as 9 basis points
to a one-month low of 0.95 percent on Thursday,
extending falls seen after Bayrou's announcement on Wednesday.
The gap between French and German 10-year bond yields, a
gauge of how investors view relative risks, narrowed to around
70 basis points, having been at 84 bps earlier this week, its
widest since late 2012.
"The break below 80 bps is a level at which domestic buyers
are tempted to step back in to French bonds," said Richard
McGuire, head of rates strategy at Rabobank.
Rising euro zone bond yields and widening spreads in the
region have not had a major impact on the real economy, and the
European Central Bank will take a look at market developments
after coming elections, board member Peter Praet said on
German 10-year yields were close to their lowest levels
this year at 0.23 percent, while Irish and
Portuguese equivalents fell to one-month lows on Thursday.
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 Andrew Roche)