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U.S. Government Bonds Strengthen on French Political Uncertainty

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02/17/2017 | 04:56pm CEST
By Sam Goldfarb 

U.S. government bonds strengthened Friday as new developments in the French presidential election drove investors to buy haven debt.

In recent trading, the yield on the benchmark 10-year Treasury note was 2.408%, according to Tradeweb, compared with 2.450% Thursday.

Yields fall when bond prices rise.

Though not the main focus of U.S. investors, the French election has been one factor driving support for Treasurys this year given concerns that a victory for the far-right candidate Marine Le Pen could lead to France exiting the European Union.

Ms. Le Pen is widely expected to make it to the second round of voting but lose in a runoff. However, on Thursday, news reports suggested that two leaders from the political left could join forces, possibly hurting the chances of the centrist candidate Emmanuel Macron.

The latest twist not only helped Treasurys but German bunds, with the yield on the 10-year German bond declining to 0.307% from 0.349% Thursday. At the same time, the 10-year French yield climbed to 1.027% from 1.011%, according to Tradeweb.

After rising sharply at the end of last year, U.S. bond yields have leveled off this year, with the 10-year yield fluctuating between around 2.3% and 2.5%.

With the economy on solid footing and Federal Reserve officials talking about raising interest rates, investors and analysts see little imminent risk of yields retreating to their historically low levels from last year.

At the same time, it could be difficult for yields to rise much higher unless President Donald Trump makes good on his promise to deliver expansionary fiscal policies in the form of tax cuts and infrastructure spending, analysts say.

After last year's postelection selloff, which was driven largely by expectations of fiscal stimulus, "this is the year where the administration and Congress are called on to justify the levels being priced" into the bond market, said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

Write to Sam Goldfarb at [email protected]

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