DJ - French Bonds Sell Off Continues as Le Pen's Odds Shorten

By Mike Bird

Government bonds in France and southern Europe sold off again Friday, with fresh data showing that foreign investors continue to dump French debt ahead of the country's presidential election.

The spread between French and German 10-year yields widened from 0.66 percentage point on Thursday to 0.73 percentage point on Friday. French bonds are now trading in the same direction as those of the southern European countries whose debt was hit hardest by the euro sovereign debt crisis.

Bonds sold off in Italy, Spain, Portugal and Greece Thursday. Investors moved money into German debt, with the yield on its 10-year government bond falling to as low as 0.3%, down from 0.35% Thursday.

During the sovereign debt crisis investors were concerned that some countries could end up leaving the eurozone, questioning the single currency's existence.

Concerns for the currency block are increasing once again as betting odds rise for an election victory for Marine Le Pen, the leader of the far-right National Front who has promised to take France out of the eurozone. Betfair now gives Mrs. Le Pen a 28.6% chance of becoming the president of France, up from 20.3% at the beginning of February.

While former economy minister Emanuel Macron remains favorite in the presidential race, foreign investors aren't taking the risk even as locals funds remain more sanguine.

Foreign-based investors sold EUR30 billion ($31.95 billion) in French bonds during the last three months of 2016, the most in two years, according to European Central Bank data released Friday.

Survey data suggests international money managers invested in other French markets are also getting nervous. Bank of America Merrill Lynch's regular survey of fund managers showed sentiment toward French stocks among global investors at its lowest level in two years. That shift comes even as investors generally warm toward eurozone equities.

"The two SHYround French [election] system means anti- Le Pen voters can rally round a single alternative in the final round and therefore she needs more than a lead in the polls, she needs a majority, to win the presidency," said Tomas Hirst, analyst at CreditSights.

But "markets are understandably wary of being caught out as they were with the Brexit and Trump votes last year," he added.

Investors are also currently grappling with a more familiar problem for the eurozone, as Greek bonds also sold off Friday. Athens is again embroiled in a tussle with international creditors over the terms of its bailout. Yields on 10-year Greek bonds rose from 7.9% Thursday to as high as 8.1% Friday.

Write to Mike Bird at Mike.Bird@wsj.com