Unrest-hit France poised for Moody's ratings verdict
TLT•Moody's is due to issue a rating decision on France after U.S. markets close Friday, with most analysts expecting a downgrade from Aa3. France's 10-year bond yield reached 5.14%, its highest since July 2002, as protests and budget pressures intensified.
1. Downgrade expected
Moody's is due to announce its decision at 2000 GMT Friday in a regular ratings review. Most analysts expect it to cut France's Aa3 rating, which has had a negative outlook since October last year. A downgrade would bring Moody's in line with Standard & Poor's and Fitch, which have already cut France's rating.
2. Budget and political pressure
A one-notch downgrade would leave France within investment grade, but further cuts could reduce the pool of investors able or willing to hold French bonds or accept them as collateral. The government's 2027 budget targets a deficit of 5% of output, compared with 5.4% this year, but the lower house has scrapped some key savings measures.
3. Bond yields rise
French borrowing costs exceed those of lower-rated peers such as Italy. The risk premium on French government debt over German bonds reached its highest in 15 years on Thursday, while the 10-year yield hit 5.14%, its highest level since July 2002. Analysts said Moody's outlook will be in focus, with parliament's fragmentation a key factor in future rating decisions.
