French 10-year yield falls below 5% as country spared ratings downgrade
TLT•France’s 10-year government bond yield fell to 4.915% on Monday after Moody’s maintained the country’s Aa3 rating, avoiding a downgrade. The French-German 10-year yield gap narrowed to 155 basis points.
1. French bonds rally
French government bonds were on track for their biggest daily price rally since May after Moody’s maintained France’s sovereign rating at Aa3 on Friday. The 10-year yield fell about 11 basis points to 4.915%, after reaching 5.1415% last week, its highest level in 24 years. The gap between French and German 10-year yields narrowed 11 basis points to 155 basis points, from a high of 177.7 basis points last week.
2. Fiscal concerns remain
Moody’s said the rating assumes a deficit-reducing budget in 2027 and that financing costs and social tensions will ease somewhat in coming months. Analyst René Albrecht said France’s fiscal problems remained, pointing to the rejection of the Social Security bill in its first reading on Friday.
3. ECB decision ahead
Oil prices eased, while investors awaited interest rate decisions from the European Central Bank and Federal Reserve later in the week. The ECB is likely to leave its deposit rate unchanged on Thursday, with attention on President Christine Lagarde’s outlook and the bank’s monitoring of the French debt selloff. Germany’s 10-year yield rose 1 basis point to 3.35%.
