* French 10-year yields briefly dip under Monday's low
* French/German yield gap lowest since November
* Markets pricing out Le Pen risks
* Bond supply pressures broader bond market
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
(Adds quote, updates prices)
By John Geddie
LONDON, April 25 France's government bond market
on Tuesday held on to gains made immediately after the first
round of the presidential election, indicating investors see
little risk of anti-euro Marine Le Pen scoring winning the final
Far-right Le Pen is lags centrist Emmanuel Macron, by around
20 points in opinion polls before their run-off on May 7.
France's benchmark government bond yield
briefly touched 3-1/2-month lows on Tuesday while the gap
between the French and German equivalents was its smallest since
"Markets turn the page on Le Pen risks already," Commerzbank
strategist Rainer Guntermann, said in a note titled "Au revoir
French debt withstood pressure seen in other euro zone bond
markets, where yields in secondary markets were rising because
of a large debt sale by the euro zone bailout fund EFSF. Yields
tend to rise during debt sales as investors make room in their
portfolios for the new supply.
French 10-year yields briefly dipped to 0.75 percent
on Tuesday morning, slightly below the 0.76 percent
level breached Monday, but by 1030 GMT were 1 bps higher at 0.77
percent. Yields fell by 10 basis points on Monday.
The gap between French and German equivalents dropped to
around 40 basis points, its lowest since early November. German
yields were 4 bps higher on the day at 0.38 percent.
Strategists at ING said some political risk was baked into
the spread before the final vote, which they calculate at around
10 basis points.
In what appeared to be an attempt to broaden her appeal to
voters ahead of the final round, Le Pen said late on Monday she
was taking "a leave of absence" from leading the National Front
But two defeated candidates - conservative Francois Fillon
and Socialist Benoit Hamon - did not even wait for Sunday's
final count to urge their supporters to rally behind Macron.
France's outgoing president, Francois Hollande, as well as
Prime Minister Bernard Cazeneuve and former prime minister
Manuel Valls have also backed Macron.
The far left's Jean-Luc Melenchon, who got 19.64 percent on
Sunday, has refused to say who he will back in the run-off. He
has been a fervent opponent of Le Pen for years, but her
anti-establishment, anti-globalisation stance could resonate
with some of his voters.
"If you look at the various market indicators, we see a
roughly 85 percent probability of Macron being elected. The
market is quite confident about the outcome and the polls were
right," said Geoffroy Lenoir, head of euro sovereign rates at
Aviva Investors in Paris.
But other fund managers remain cautious.
"On paper, the result of the final round of the French
election now looks to be a foregone conclusion," said David
Zahn, head of European fixed income at Franklin Templeton. "But
if we've learned anything from recent political events, it's to
expect the unexpected."
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 Robin Pomeroy)