NEW YORK: US Treasury prices gained on Friday as concerns over the French presidential election and weak data in Britain added to risk aversion, hurting stocks and boosting demand for safe haven US debt.

Reports that the two main left-leaning candidates in France’s election are holding talks on possible cooperation, which could put one of them in contention to reach the election runoff, dampened risk appetite overnight.

British 10-year government bond yields fell to a three-month low on Friday after data showed shoppers unexpectedly spent less in January, while German government bonds were also boosted by nervousness over the French election.

“The market is benefiting from lower yields overseas and sort of a reassessment of the ‘risk on’ trade that we’ve seen in equities,” said Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management in New York.

Benchmark 10-year notes were last up 8/32 in price to yield 2.42 per cent, down from 2.45 per cent late on Thursday. The yields earlier dropped to 2.40 per cent, the lowest since Feb. 10.

US bond yields spiked midweek after hawkish testimony from Federal Reserve Chair Janet Yellen on Tuesday led traders to prepare for the possibility of an interest rate hike as soon as March.

Strong consumer price inflation and retail sales data added to this sentiment.

Buyers came back to the market on Thursday, however, attracted by the higher yields and as market pricing for a March hike remained well below levels that would make the US central bank comfortable in moving.

“People have gotten overly excited thinking the Fed might potentially hike in March,” said Mike Schumacher, head of rate strategy at Wells Fargo Securities in New York.

“It’s very rare for the Fed to hike unless the market’s pricing at least a 60 per cent probability one month ahead of the meeting, and we’re effectively one month ahead of the meeting now and the market’s just not priced at that level,” Schumacher said.

Futures traders are now pricing in an 18 per cent chance the US central bank will raise rates at its March meeting, down from 31 per cent on Wednesday, according to the CME Group’s FedWatch Tool.

The Fed will release minutes from its January meeting next Wednesday, which will be evaluated for any new signals on when a rate hike is next likely.

The US bond market will be closed on Monday for the Presidents Day holiday.

(Editing by Bernadette Baum and Andrew Hay)

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