French government bonds extended their rally, driven by stronger market risk appetite and capital flowing out of safe-haven assets, with the yield spread between French 10-year government bonds and German bonds of the same maturity narrowing to its lowest level since September 30.

The spread between French and German government bonds narrowed by 12 basis points to 125 basis points.

Amid concerns over political and fiscal risks, the spread had widened to 159 basis points last Friday, the highest level since 2011.

Italian government bonds also benefited from improved risk appetite, with the spread between Italian and German government bonds narrowing by 10 basis points to 103 basis points.