The risk premium for French sovereign debt dropped on Monday, after the first round of general elections in France confirmed the rise of the far-right National Rally (RN) party and the erosion of support for President Emmanuel Macron's centrist bloc.

Analysts said a hung parliament remained the base case, loosely in line with market expectations.

Investors feared that a new government could increase fiscal spending, threatening the sustainability of the country's public debt but hoped the RN party would implement just part of its fiscal pledges.

“Given the division in the French parliament we find it unlikely that the new government can find support for any larger increases in spending,” said Rune Thyge Johansen, euro area economist at Danske Bank.

The exit polls aligned with opinion surveys ahead of the election and provided little clarity on whether the eurosceptic RN can form a government to "cohabit" with the pro-EU Macron after next Sunday's run-off.

The yield spread between French and German 10-year sovereign bond yields -- a gauge of the premium investors demand for the extra risk of holding French bonds – tightened to 73 bps after hitting its highest since 2012 at 85 bps on Friday.

It was below 50 bps before Macron's surprise decision on June 9 to call a snap election.

The RN's chances of winning power next week will depend on the political deal-making made by its rivals over the coming days. (Reporting by Stefano Rebaudo, editing by Amanda Cooper)