* German 10/30 govt bond yield spread hits 11-week low
* Auction of German 2044 bonds to test demand for duration
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Abhinav Ramnarayan
LONDON, April 19 Long-dated German government
bond yields were close to their lowest level of 2017 on
Wednesday as investors retreated to safe assets in the face of
concerns over geopolitical tensions and the upcoming
presidential election in France.
Tensions between the United States and North Korea remain
high, with Vice President Mike Pence on Wednesday pledging an
"overwhelming response" to any attack.
In Europe, investors are preoccupied with a British snap
election in June and Sunday's unpredictable first round vote in
France, where two anti-EU candidates - far-leftist Jean-Luc
Melenchon and National Front leader Marine Le Pen - both have
chances to advance to a May 7 run-off.
This has increased the demand for German bonds, considered
one of the safest assets in the world, to such an extent that it
appears to have trumped concerns on duration.
"When you look at the political issues we have globally, and
within the euro zone with the French elections, to buy
long-dated Germany is seen as a safe-haven trade," said DZ Bank
analyst Rene Albrecht.
"When you add to that expectations that the ECB doesn't end
the QE programme soon, and inflation expectations are lower, all
of the arguments speak for being long duration (on German
bonds)," he added.
The gap between Germany's 30-year and 10-year government
bond yields tightened to 71.8 basis points, its lowest since the
beginning of February.
This after the yield on the German 30-year bond hit its
lowest level all year late on Tuesday at 0.876 percent. The
German 10-year bond yield, the euro zone benchmark, also hit its
lowest level since November, tracking a move lower in U.S.
On Wednesday, high-rated euro zone government bond yields
were largely unchanged though France's 10-year government bonds
dropped 2 basis points to 0.88 percent.
A further test of demand for long-dated German bonds awaits,
with the country's debt agency due to sell 1 billion euros of
bonds maturing in 2044 later on Wednesday.
"That will be a test for sure, because the bonds are quite
expensive now and yields will almost certainly rise after the
French presidential elections," said Albrecht.
The fall in long-dated government bond yields is a reversal
of sentiment from earlier this year, when higher inflation and
the expectations of reduced stimulus from the European Central
Bank led investors to shed long-dated bonds.
In March this year, the yield on the German 30-year bond hit
1.29 percent, its highest in more than a year. Since then,
lower-than-expected increases in euro zone consumer prices have
compressed inflation expectations.
Inflation in the 19-member currency union fell to 1.5
percent in March from a four-year high of 2.0 percent in
February, and well below expectations for 1.8 percent.
The five-year five-year forward breakeven rate, a key gauge
of long-term inflation expectations in the bloc, has dropped to
1.58 percent compared to 1.795 percent in January.
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 Mark Trevelyan)