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Japanese investors ramped up their selling of French government debt to a record pace in February as bondholders shuddered at polls showing rising support for eurosceptic candidate Marine Le Pen in the country’s upcoming presidential elections.

Money managers in Japan dumped ¥1.58tn (€13.4bn) of French bonds in the fourth consecutive month of net sales as the country’s long-running favourite for the presidency, François Fillon, was engulfed by an embezzlement scandal.

Japanese investors have played an increasingly important role in the French debt markets as the country’s banks and insurers began piling into French assets after the Bank of Japan implemented a negative interest rate policy at the start of last year.

Money managers in Japan account for around 10 per cent of France’s outstanding debt market and have sold over ¥2tn of the country’s debt since November.

The figures highlight the scale of investor jitters during the unpredictable race which took a fresh turn in February.

The start of the month saw revelations about Mr Fillon’s alleged payments to his family, helping send the premium bondholders demanded to hold French benchmark bonds over German debt to the highest since the eurozone crisis. France’s 10-year yields also leapt to an 18-month high of 1.1 per cent in February as polls showed Ms Le Pen on course to contend the final round vote.

A relative calm has since returned to the French debt market as centrist candidate Emmanuel Macron has gained momentum to poll in joint first place with Ms Le Pen in the first round voting intentions. The independent Mr Macron is on course for clear victory in the second round run-off.

A poll from Kantar Sofres out today puts Ms Le Pen and Mr Macron tied at 24 per cent in the first round followed far-left candidate Jean-Luc Mélenchon who has surged to leapfrog Mr Fillon to poll at 18 per cent – a six-point gain.

French bonds are leading a sell-off in European debt today, with yields shedding 5 basis points. The equivalent Italian and Portuguese yields are down 3 basis points.

Copyright The Financial Times Limited 2017. All rights reserved.
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