French government bond yields plunge...Moody’s Corporation keeps Aa3 credit rating

[Financial News]  

International credit rating agency Moody’s Corporation came to the rescue of the French economy at a critical moment on the 26th (local time).
Buying surged in French government bonds that day, driving yields—which move inversely to prices—sharply lower. This meant the heavily indebted French government would not have to pay higher interest.
According to the Financial Times (FT), the yield on France’s benchmark 10-year government bond plunged 0.12 percentage points that day to 4.91%. The rise in French bond prices also lifted bond prices across the Eurozone (the 21 countries that use the euro).
The sharp fall in yields eased some of France’s public debt burden. Last week, the 10-year yield breached 5% for the first time since 2022.
Moody’s Corporation was the main driver of the sharp drop in government bond yields.
On the 23rd, Moody’s Corporation maintained France’s sovereign credit rating at Aa3. It also left its negative outlook unchanged, meaning the possibility of a downgrade remains.
Even so, France was able to breathe a sigh of relief, as a downgrade had seemed likely in the wake of recent intense protests and violence. Some believe that protests across France were largely peaceful over the weekend, amid a large-scale police deployment and restrictions on demonstrations, helping ease some concerns about political instability.
Ales Koutny, Vanguard’s global head of rates, said markets were “somewhat relieved that the weekend protests had been kept under control.”
Alex Everett, chief investment officer at Aberdeen Asset Management, said, “The fact that there was no downgrade had a positive impact.”
The yield spread between French government bonds and German government bonds, considered a “safe-haven asset,” had topped 1.7 percentage points last week for the first time since 2011. It fell that day to just above 1.5 percentage points.
Meanwhile, when Moody’s Corporation maintained France’s credit rating on the 23rd, it explained that “the fiscal 2027 budget, which includes measures to reduce the deficit, will be implemented, while financing costs and social tensions are expected to ease somewhat over the coming months.”
France’s Aa3 sovereign credit rating is the fourth-highest and one notch below South Korea’s Aa2 rating.

[email protected] Song Kyung-jae Reporter