French bond selloff eases as country spared ratings downgrade
TLT•French government bonds recovered after Moody’s maintained France’s Aa3 rating, while weekend protests largely passed without the civil unrest of the previous week. France’s 10-year yield fell 4.5 basis points to 4.976%, and the spread over Germany’s 10-year yield narrowed 5 basis points to 161 basis points.
1. Rating decision eases pressure
France’s bond selloff paused after Moody’s kept its sovereign rating at Aa3 on Friday. The agency said the rating assumes a deficit-reducing budget in 2027, with financing costs and social tensions abating somewhat in the next few months.
2. Yields and ECB focus
France’s 10-year government bond yield fell 4.5 basis points to 4.976%, after reaching 5.1415% on Thursday, its highest level since June 2002. The spread between French and German 10-year yields narrowed 5 basis points to 161 basis points, after reaching its widest level since 2011 last week. The European Central Bank announces its policy decision on Thursday and is likely to keep its deposit rate unchanged.
3. Broader bond market
Euro zone bonds also drew support from a small decline in oil prices ahead of rate decisions by the European Central Bank and Federal Reserve. Germany’s 10-year yield rose 1.5 basis points to 3.357%, while its two-year yield rose 2 basis points to 3.049%.
