* Euro zone periphery govt bond yields tmsnrt.rs\/2ii2Bqr (Adds economist comment, background, updates prices)<\/p>\n
LONDON, June 28 (Reuters) – Euro zone bond yields fell on Monday, with news that France\u2019s far right failed to win a single region in weekend elections bringing some relief to French bond investors.<\/p>\n
Sunday\u2019s vote in the southern Provence-Alpes-Cote d\u2019Azur had been seen as the far right Rassemblement National (RN) party\u2019s best opportunity to secure its first ever regional power base, but other parties united to keep it out.<\/p>\n
The results, while depriving RN leader Marine Le Pen of a chance to show her party is fit for power ahead of next year\u2019s presidential election, also showed no wins for the party of French President Emmanuel Macron.<\/p>\n
France\u2019s 10-year bond yield fell 4 basis points to 0.16% , with the gap over German Bund yields tightening a touch to 34 basis points (bps).<\/p>\n
\u201cI do see a small tightening of French bonds versus Germany this morning, nothing out of the ordinary,\u201d said ING senior rates strategist Antoine Bouvet.<\/p>\n
He said one reason could be that the results confirmed a poor showing for the far right hinted at in the first round, and that \u201cdecent results\u201d for the centre right Les R\u00e9publicains suggested a three – rather than two – horse race at next April\u2019s presidential election.<\/p>\n
\u201cThis could mean two centrists making it to the run off, or this could mean a further splitting of centrist votes that would favour Le Pen,\u201d Bouvet said.<\/p>\n
\u201cI am tempted to lean towards the more optimistic interpretation but it is hard to draw firm conclusions, and the lack of market reaction suggests that I\u2019m not the only one.\u201d<\/p>\n
\u201cThe outcome of the French 2022 elections seems even more open than before the regional vote,\u201d Holger Schmieding, an economist at Berenberg, said.<\/p>\n
Most 10-year bond yields were lower as investors looked ahead to this week\u2019s flash euro zone inflation numbers and the U.S. non-farm payrolls report.<\/p>\n
Meanwhile, some of them had been increasingly concerned about a possible new wave of the pandemic after the summer as the Delta variant continued to spread.<\/p>\n
Germany\u2019s benchmark 10-year Bund yield was 3 basis point lower at around -0.19%.<\/p>\n
Jacob Nell, head of European economics at Morgan Stanley, said he expected a slow grind higher in bond yields, led by U.S. Treasuries.<\/p>\n
\u201cIn Europe, where we see lower inflation a dovish ECB (European Central Bank) that continues to buy bonds, yields will follow the U.S. higher to a lesser degree,\u201d he said.<\/p>\n
A hefty week for bond supply could put some upward pressure on bond yields.<\/p>\n
According to ING, more than 30 billion euros ($36 billion)of scheduled supply is possible from Belgium, Italy, Spain and France. Analysts said the highlight was further issuance from the European Union to fund the bloc\u2019s recovery fund. ($1 = 0.8376 euro)<\/p>\n