Moody’s Spares France Aa3 Rating — Yields Hit 2002 High

Quick Answer: Moody’s kept France at Aa3, sparing it a downgrade that bond markets had been pricing in. The 10-year bond yield hit 5.14%, its highest since July 2002. The rating still carries a negative outlook, so the Moody’s France rating can move again.

Why Did Moody’s France Rating Stay at Aa3?

Moody's France rating kept at Aa3 amid unrest — French government debt faces pressure as protests spread

Moody’s kept France at Aa3, which has carried a negative outlook since last October. Bond markets had priced in a downgrade that would have matched Standard & Poor’s and Fitch.

The French finance ministry credited the “credibility of the budget” in the 2027 finance bill. Moody’s said the Aa3 rating assumes a deficit-reducing 2027 budget will be adopted.

Moody’s Spares France Aa3 Rating — Yields Hit 2002 High — Photo: Free Malaysia Today

How High Have French Bond Yields Climbed?

10-year yield: 5.14%, the highest since July 2002
Risk premium over German bonds: highest in 15 years on Thursday
Borrowing costs: already above lower-rated Italy

The 2027 budget targets a deficit of 5% of output, down from 5.4% this year. The lower house has already scrapped some key savings measures.

Can France Pass Its 2027 Budget Through Parliament?

The government is struggling to pass the bill, and opposition parties could reject it and topple the government in a no-confidence vote. Opposition parties are scrapping some proposed cuts while adding spending.

Violent protests over underfunded schools escalated into riots during cost-of-living demonstrations. The government has refused to release more school funding or raise the minimum wage, and further protests are planned for Saturday.

What Happens to France’s Rating After the Presidential Vote?

The presidential election is set for April 18 and May 2 next year, and polls suggest the far right could win. Mike Bell, head of market strategy at RBC BlueBay Asset Management, said pressure could grow if all three agencies cut France to BBB, just above junk status.

Bell warned that forced sales by investors with rating limits could follow. “That’s where it could really start to get more ugly,” he said.

What Does This Mean for Bursa Malaysia Investors?

No Bursa Malaysia-listed company is named in Moody’s decision, so no stock code or earnings figure can be tied to it directly. The read-across is indirect, through global bond pricing and risk appetite.

Rushabh Amin, portfolio manager at Allspring Global Investments, said the next six months into the election will matter more for the spread. Investors may want to watch how that narrative develops.

Key Takeaways

Moody’s kept France at Aa3 with a negative outlook.
The 10-year yield hit 5.14%, its highest since July 2002.
The 2027 budget targets a deficit of 5% of output versus 5.4% this year.
Parliamentary fragmentation is the key factor for the next rating move.

Frequently Asked Questions

Did Moody’s downgrade France’s credit rating?

No. Moody’s kept France at Aa3 with a negative outlook, sparing it a downgrade that bond markets had been pricing in.

What is France’s 10-year bond yield?

France’s 10-year bond yield hit 5.14%, its highest level since July 2002. The risk premium over German bonds also reached its highest in 15 years.

How close is France to junk status?

Mike Bell of RBC BlueBay Asset Management said BBB would be just above junk status. A cut to BBB by Moody’s, S&P and Fitch is a scenario he flagged after the presidential vote.

When are France’s presidential elections?

The presidential vote is on April 18 and May 2 next year. Polls suggest the far right could win.

Disclaimer: This article is for general information only and does not constitute investment advice or a recommendation to buy, sell or hold any security. Always do your own research before making investment decisions.

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