LONDON (Reuters) - A combination of French political worries, rebounding growth data and progress on Greece's bailout talks tugged euro zone bond markets in all directions on Tuesday.
Short-dated German bond yields -- in high demand due to a shortage created by the European Central Bank's bond-buying scheme -- sank to a new record low with analysts saying investors were parking their cash in one of the safest assets in the euro zone before French elections.
Investors have been rattled by the prospect of anti-euro, far-right leader Marine Le Pen staging another political surprise in the race for the French presidency, with a poll on Monday showing her closing the gap with centrist opponents.
The gap between French and German two-year yields topped 40 basis points on Tuesday, its widest since the 2012 debt crisis.
French 10-year yields -- which move inversely to prices -- climbed some 6 basis points to 1.10 percent, while most other euro zone equivalents nudged higher after better-than-expected private sector growth data in France and Germany.
Rebounding growth supports those in the European Central Bank arguing for the withdrawal of monetary stimulus that has driven up financial asset prices in recent years.
"It seems that, more and more, investors just want to get out of French bonds and are trying to take advantage of any chance to sell them," DZ Bank Daniel Lenz said.
Greek bonds were the biggest movers after Athens and its international lenders agreed on Monday to let teams of experts work out new reforms to Greek pensions, income tax and labour market that would allow Athens to eventually qualify for more cheap loans.
Yields on short-dated Greek bonds fell more than 1 percentage point to a three-week low of 8.15 percent.
(Editing by Nigel Stephenson)
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