* Japan investors sell 13.4 bln euro of French bonds
* Worries about presidential election hit nerve
* Japanese investors hold 12 pct of French bonds
* For graphic: tmsnrt.rs/2pje6NR
By Hideyuki Sano
TOKYO, April 10 Japanese investors dumped a
record amount of French bonds in February, rattled by the rising
popularity of far-right candidate Marine Le Pen in the upcoming
presidential election, data from the Ministry of Finance showed
Japanese investors, who were major foreign buyers of French
debt last year, sold 1.58 trillion yen (13.4 billion euros,
$14.2 billion) of French bonds in February, surpassing a
previous record of 1.25 trillion yen marked in June 2015.
"They are worried about the third surprise (after U.K
referendum and U.S. Presidential election last year)," said
Hideki Kishida, senior strategist at Nomura Securities.
While most investors see the chance of Le Pen winning as
slim, risk-averse Japanese investors remain in no mood to
stomach the chance of a victory, which could lead to a plunge in
French debt prices.
French voters go the polls on April 23 and May 7 in the
two-round election, which is being closely followed outside
France as another test of popular discontent with traditional
parties and institutions such as the European Union.
Le Pen's anti-European Union stance has prompted investors
to price in various risks, including the possibility that French
bonds may be redeemed in a new national currency, such as a
resurrected franc, not the euro.
Such worries drove the premium investors demand for holding
French bonds over benchmark German debts to around 0.84 percent
in February, hitting the highest level since 2012. The yield
spread now stands at around 0.66 percent, still well above the
premium of around 0.3 percent seen six months ago.
Japanese investors had flocked to French bonds last year
after the Bank of Japan introduced its deeply unpopular negative
interest rate policy, which wiped out yields in Japanese bonds.
The appeal of French bonds stems from their high credit
rating, higher yields compared to German bonds and deep market
liquidity that allows investors to trade a large amount without
affecting prices too much.
From January to October last year, Japanese investors bought
4.23 trillion yen of French bonds. Analysts estimate Japanese
investors held 27 trillion yen of French bonds, about 12 percent
of the entire market, at the end of last year.
While most investors are expected to stay on the sidelines
ahead of the elections, there are some who think French bonds
now offer an attractive investment opportunity.
"In the big picture, the global bond sell-off triggered by
expectations about Trump's policy has come to an end," said
Akira Takei, a fund manager at Asset Management One.
"The outcome of the French election is hard to tell ... but
the French opinion polls show not many people support an exit
from the euro."
($1 = 111.38 yen)
(1 euro = 117.78 yen)
(Reporting by Hideyuki Sano; Editing by Sam Holmes)