* Uncertain presidential vote pushes French-German spread
* Low-rated euro zone govt bonds sell off on political
* Policy, geopolitics keep Bund yields close to one-month
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Abhinav Ramnarayan
LONDON, April 10 France's borrowing costs hit
their highest level over Germany in six weeks on Monday as
investors fretted over the rise of far-left candidate Jean Luc
Melenchon in polls before this month's presidential vote.
Melenchon's emergence over the past week has raised the
possibility that he will square off against far-right leader
Marine Le Pen in the decisive second round in May, making the
final result far more unpredictable.
"The market is focusing a bit too much on the extreme
possibilities, but I guess with the elections coming up so soon
some nerves are inevitable," said DZ Bank strategist Christian
Lenk. "But at the end of the day I think (the second round) will
be Macron versus Le Pen."
The gap between French and German bond yields has shot wider
in recent months on the possibility that Le Pen will win the
keys to the Elysee Palace and try to take France out of the
single currency bloc. The spread came off its February highs as
centrist Emmanuel Macron made gains and with polls suggesting he
would win comfortably in the second round.
But recent polls have shown the race tightening as the
front-runners faltered and Communist-backed maverick Melenchon
surged after strong performances in two televised candidates'
France's bond yield spread over Germany hit 70 basis points
in early trading on Monday, its highest since Feb. 27
Investors also dumped low-rated South European government
bonds on Monday and yields on Spanish, Italian and Portuguese
10-year bonds were up 4-5 bps on the day.
These "peripheral" bonds tend to perform badly when there
are concerns over the future of the euro zone.
A heavy week of supply could also be weighing on government
bonds in a shortened week when liquidity would naturally be low
anyway, said Lenk. Five euro zone countries are due to sell
bonds via auctions this week.
There were yield gains further up the ratings curve as well,
but monetary policy expectations and increased geopolitical risk
pushed German 10-year yields a touch lower to 0.225 percent,
close to one-month lows hit late last week.
Commerzbank analysts attributed this to reduced expectations
for rate rises, prompted by dovish comments from European
Central Bank policymakers.
ECB President Mario Draghi said on Thursday he saw no need
to deviate from the ECB's stated policy path, which includes
bond buying at least until the end of the year and record-low
rates until well after that.
Demand for low-risk assets also rose after U.S. missile
strikes on Syria which have increased tensions in the Middle
East and worsened Russia-U.S. relations.
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
(Reporting by Abhinav Ramnarayan; Editing by Andrew Heavens)