By Min Zeng 

The U.S. bond market pulled back and reversed earlier price gains, a swing that reflects investors' uneasiness toward France's presidential race this Spring.

After falling to 2.393% earlier in the session, the yield on the benchmark 10-year Treasury note was recently at 2.440%, according to Tradeweb, compared with 2.429% Tuesday. Yields rise as bond prices fall.

The Federal Reserve is scheduled to release its minutes for the Jan. 31-Feb 1 policy meeting at 2 p.m. ET Wednesday. Investors will zero in on clues about the Fed's timing for the next interest-rate increase, which affects investors' wagers on the bond market.

Demand for haven bonds rose earlier in the session as investors hedge the prospect of a victory by far-right candidate Marine Le Pen, who has threatened to pull France out of the eurozone.

Bond prices then retreated after French centrist François Bayrou said he wouldn't stand in the election and was offering an alliance with independent centrist candidate Emmanuel Macron.

Analysts say the latest news deflated some worries over a possible victory by Ms. Le Pen. But they expect the muddy election outlook is likely to fuel more bond price swings.

Polls this week showed growing support for Ms. Le Pen. Growing political populism has led to the Brexit last June and the election of Donald Trump as the U.S. president last November. Both outcomes surprised many investors, making them cautious over the French election results.

"It is not clear that this news clarifies the outcome of the elections yet," said Larry Milstein, head of government and agency trading at R.W. Pressprich.

Strong demand for highly liquid bonds earlier had sent the yield on the two-year German government debt to a record low of negative 0.914%. The yield on the 10-year German bund, the benchmark for eurozone's debt markets, earlier touched the lowest in more than a month.

Investors have been cutting exposure to government bonds in France over the past weeks and migrating cash into government bonds in Germany and the U.S.

Earlier Wednesday, the yield premium investors demanded to hold the 10-year government bond in France relative to the 10-year German bund had risen to around 0.81 percentage point, the highest since Sept 2012. It has been rising from 0.47 percentage point at the end of 2016, reflecting investors selling French bonds to buy bunds.

John Stopford, co-head of multiasset at Investec Asset Management, said the premium still has room to rise given the uncertainty of the election results.

"Investors are likely to be cautious," he said. This factor is offsetting others that put upward pressure on Treasury bond yields, such as solid U.S. data, the prospect of expansive fiscal stimulus and the Fed's plan to raise short-term interest rates, he said.

The crosscurrents have held the 10-year Treasury yield between 2.3% and 2.6% since mid-December even as U.S. stocks have set a string of record highs and deepened a rally since the U.S. election. On Tuesday, the Dow Jones Industrial Average and the S&P 500 hit record highs.

Some investors say the slide of German bond yields also reflects market expectation that the European Central Bank is likely to continue to buy government bonds and keep short-term interest rates at ultralow levels.

Data have painted an improving picture of the Euro Zone with signs of a shift away from low inflation, yet political uncertainty may muddle the growth outlook, say analysts. The Netherlands and Germany will also hold elections this year.

The divergent paths of interest-rate policy between the ECB and the Fed are rippling into the bond markets. Wednesday, the yield premium investors demanded to hold the two-year Treasury note relative to the two-year German government bond was around 2.1 percentage points recently, the highest since 2000, according to data provider CQG.

Over the past week, officials including Fed Chairwoman Janet Yellen have signaled that a rate increase could come as soon as next month. Federal Reserve Bank of Philadelphia President Patrick Harker said he wouldn't "take March off the table" in an interview Friday with Market News International.

Write to Min Zeng at min.zeng@wsj.com

(END) Dow Jones Newswires

February 22, 2017 13:24 ET (18:24 GMT)