* Euro zone yields 2-4 bps higher on day
* Focus back on economic outlook and ECB after French
* Auctions from Netherlands, Austria also weigh
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, May 9 Borrowing costs across the euro
area rose on Tuesday as the decisive outcome to France's
presidential election allowed investors to move on to the
prospects for a scaling back of ECB monetary stimulus.
Bond supply from the Netherlands, Austria and Germany later
in the day put some upward pressure on bond yields.
But the key driver for higher yields across the bloc was a
perception that fading political risks in France after Sunday's
win for centrist Emmanuel Macron could pave the way for the
European Central Bank to step back from its ultra-loose monetary
Data on Tuesday showed German industrial production fell by
less than expected in March and trade proved resilient,
supporting expectations for a robust performance of Europe's
biggest economy in the first quarter.
On Monday, ECB board member Yves Mersch said the central
bank is close to replacing its negative view with a neutral one
on whether the euro zone economy will reach growth targets, and
should adjust its policy guidance accordingly.
"The political issues which were very much in focus are gone
for now and the focus is back to the macro outlook," said DZ
Bank analyst Daniel Lenz.
German two-year government bond yields briefly rose to minus
0.64 percent, their highest level since the end of
January, while benchmark 10-year Bund yields were 2 basis points
higher on the day at 0.44 percent -- hovering
close to six-week highs hit on Monday.
Dutch 10-year bond yields rose to six-week highs around 0.49
percent. Southern European bond yields, seen as
most vulnerable to a removal of central bank stimulus, were 3-4
basis points higher on the day.
Societe General analysts said they expect the ECB to say in
June that the balance of risks has shifted to neutral, opening
the door to an announcement on tapering the bond-buying stimulus
programme in September.
"The forward guidance is now turning conditional, a shift
that we think particularly exposes the belly of the curve," they
said in a note, referring to medium-term yields.
That could provide a more challenging backdrop for bond
sales in the euro area.
Later on Tuesday, the Netherlands sells 2-3 billion euro of
five-year bonds, while Austria is scheduled to auction 1.1
billion euros of long-dated debt. Germany also comes to the
market with a sale of inflation-linked bonds.
For Reuters Live Markets blog on European and UK stock
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(Editing by Jeremy Gaunt)