Euro zone bond yields tick up as markets pass French debt sale test
Updates at 1458 GMT
By Harry Robertson and Yoruk Bahceli
LONDON, July 4 (Reuters) -Euro zone bond yields edged higher on Thursday after dropping the previous day, as a French government bond sale passed with little trouble before the final round of the country's parliamentary elections on Sunday.
Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, rose 2.5 basis points (bps) to 2.583%. Yields move inversely to prices.
France attracted demand worth 2.59 times the amount raised across four bond sales, slightly higher than its last long-dated auction before President Emmanuel Macron called a snap election in early June and in line with other auctions this year.
It raised 10.5 billion euros ($11.34 billion) in total, the top amount it was targeting. France has reduced the amount it is trying to auction during the election period.
The country's 10-year bond yield FR10YT=RR showed little reaction and was up 3.5 bps at 3.284% after falling 6 bps the previous day.
"It seems like investors have made out the most from the elections-related cheapening to buy this auction," said Evelyne Gomez-Liechti, multi-asset strategist at Mizuho. "Especially with the two tail risks - far-left and far-right absolute majorities - now seemingly off the table."
The gap between French and German borrowing costs has narrowed under 70 bps DE10FR10=RR. The so-called spread, a gauge of French risk, spiked to its highest since 2012 at 85 bps last week as fears of a far-right election victory rose.
"Spreads have been tightening and sentiment has been a bit more positive," said Jussi Hiljanen, head of rates strategy at lender SEB.
Euro zone bond yields fell across the board on Wednesday after weak U.S. economic data bolstered expectations for rate cuts from the Federal Reserve this year. Investors typically think weaker U.S. data makes it easier for the European Central Bank to lower borrowing costs further.
"The recent U.S. data has been supporting the idea the economy has been showing signs of cooling down, which would then open up for Fed rate cuts in the autumn," Hiljanen said.
U.S. markets are closed for the Fourth of July holiday.
Italy's 10-year yield IT10YT=RR was higher by 2.5 basis points at 4.009%.
Germany's two-year bond yield DE2YT=RR, which is more sensitive to European Central Bank rate expectations, was up 2 bps at 2.936%.
Also on traders' radars is monthly U.S. employment data and the results of Thursday's British general election, both due on Friday.
A hung parliament appears the most likely result in the second round of French parliamentary elections, as left and centrist groups strike deals to try to keep Marine Le Pen's Rassemblement National from power.
($1 = 0.9261 euros)
The risk premium on French debt has fallen https://reut.rs/3VKFTYy
Reporting by Harry Robertson; Editing by Stephen Coates and Anil D'Silva
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