April 13, 2017 / 7:47 AM / 3 months ago

UPDATE 3-High-grade euro zone yields fall after Trump rate comments

4 Min Read

* Investors pile into German, Dutch, Finnish bonds

* Treasury yields fall after Trump comments on dollar, rates

* Political concerns, French vote add to safe-haven flows

* Periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices)

By Abhinav Ramnarayan

LONDON, April 13 (Reuters) - Yields on high-rated euro zone government bonds fell to multi-month lows on Thursday after U.S. President Donald Trump said he would prefer the Federal Reserve to keep interest rates low.

Tracking an overnight drop by U.S. Treasury yields in response to Wednesday's comment, investors piled into high-rated German, Dutch and Finnish government bonds, pushing their yields lower, too.

"It looks like Bunds are catching up with the bull move we have seen in U.S. Treasuries late yesterday," said Commerzbank strategist David Schnautz.

Germany's 10-year government bond yield fell to its lowest level since early January at 0.16 percent. It had trimmed falls by late afternoon trade in line with U.S. peers after data showed an unexpected improvement in U.S. consumer sentiment. But it was still 2 basis points lower on the day.

Dutch 10-year government bond yields fell to a five-month low of 0.26 percent, down 3 basis points, while the Finnish equivalent dropped below 0.30 percent for the first time since Nov. 9.

Yields have been rising in the developed world since September on the prospect of monetary policy tightening by the world's major central banks, a move underpinned by December and March rate increases in the United States.

Trump's comments cast doubt on the future pace of Fed rate increases, and the benchmark U.S. Treasury yield briefly fell to 2.22 percent on Thursday, its lowest level in almost five months.

Thursday's move caps a month of steady buying of the better-rated euro zone government bonds. The yield on Germany's 10-year government bond, the benchmark for the region, is down more than 30 basis points from its mid-March peak of 0.509 percent.

"I think the price action in core yields is mainly shaped by the rising geopolitical concerns, but also French election nerves, increasing safe-haven flows," said ING strategist Martin Van Vliet.

The first round of the French presidential election takes place on April 23, with markets uneasy about the chances of far-right leader Marine Le Pen, who has pledged to try and take France out of the euro.

In the last two weeks, the emergence of far-left candidate Jean-Luc Melenchon, another anti-EUer, as a potential winner has added a fresh worry. Some of his proposals - such as a 100 percent tax band and a reduction in the working week - are considered market-unfriendly.

One of the latest polls suggests Le Pen will get 23.5 percent of the vote in the first round, centrist Emmanuel Macron 22.5 percent, conservative Francois Fillon 19 percent and Melenchon 18.5 percent. The top two candidates will contest a run-off in May.

The gap between French and German 10-year borrowing costs, an indicator of concern over the election, was at 72 basis points, 4 basis points off one-month highs hit earlier this week. (Reporting by Abhinav Ramnarayan, editing by Larry King)

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