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By Lukanyo Mnyanda and Keith Jenkins - 2012-05-26T06:00:00Z

Frances bonds rose in the week, with 10-year yields falling the most in five months, as investors sought higher-yielding alternatives to German securities as havens from Europes debt crisis.

Yields on the French benchmark debt slid to a record yesterday as a report showed consumer confidence improved and after Le Parisien reported the government may raise tax-free state savings-account limits, potentially boosting demand from banks holding the deposits. German 30-year bonds pared a fourth week of gains as Italian Prime Minister Mario Monti said Europes largest economy can be persuaded to support joint euro bonds. Spanish 10-year yields stayed above 6 percent.

It may just be a product of a hunt for yield as the yield compression has continued almost unabated across the bund curve to the point where even 30-year bonds dipped below 2 percent, said Richard McGuire, a senior fixed-income strategist at Rabobank International in London. That perhaps informed the positive performance that weve seen in semi-core paper.

The French 10-year yield fell 34 basis points, or 0.34 percentage point this week, to 2.52 percent at 4:28 p.m. London time yesterday, after reaching 2.422 percent, the least since Bloomberg began collecting the data in 1990. The 3 percent bond due April 2022 rose 2.93, or 29.30 euros per 1,000-euro ($1,257) face amount, to 104.19.

Austrias five-year note yield was at 1.25 percent, after falling to a record 1.216 percent.

The extra yield, or spread, that investors get for buying 10-year French bonds over similar-maturity German bunds narrowed 28 basis points in the week 114 basis points. It widened to a euro-era record 204 basis points in November.

Investors looking for safety within Europe amid speculation that Greece may withdraw from the monetary union are looking beyond Germany, which sold two-year notes on May 23 at an all- time low average yield of 0.07 percent. The securities carried a zero-percent coupon. The country also sold index-linked bonds due April 2023 with a real yield of minus 0.24 percent.

Dramatic rallies in core-to-semi-core markets have dominated price action in the past couple of days, Padhraic Garvey, head of developed-market debt at ING Groep NV in Amsterdam, wrote in a note to clients yesterday. The likes of France, Austria and Belgium are perceived to be offering the characteristics of relative safety, but with a spread that more than compensates for the extra risk.

Benchmark 10-year German bund yields declined six basis points to 1.37 percent.

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French Bonds Gain as Investors Seek Crisis Havens