French 10-year bond yields fell to a one-month low on Monday, tightening the gap with German peers on further signs that centrist candidate Emmanuel Macron is the clear favourite in France's closely-watched presidential election. Italian yields also hit one-months lows, as the prospects of snap elections in Italy dimmed after former prime minister Matteo Renzi said on Sunday it was up to his successor to decide whether Italy should hold its next national election before the term of the current legislature ends in early 2018.
Polls released over the last few days have shown Macron, a former economy minister running without the support of any traditional political party, extending his lead over the far-right's Marine Le Pen in a May presidential election runoff. Both would first have to get through the first round in April.
Unease at Le Pen's strong showing in France's presidential race has hurt French government bonds in recent weeks, with her anti-euro stance unnerving investors. France's 10-year bond yield fell as much as 4 basis points to a one-month low of 0.88 percent, outperforming top-rated German Bund yields, which were slightly higher on the day at 0.20 percent. That pushed the French/German yield gap to around 68 bps, its tightest level in over a week and down from around 84 bps last week - the widest since late 2012. Italy's 10-year bond yield fell to a one-month low at 2.13 percent. Italy on Monday sold 10 billion euros at a auction, at the top of a planned issuance range.