French Borrowing Costs Drop After Moody’s Rating Decision
The spread between French and German ten-year borrowing rates shrank by approximately 0.14 percentage points to 1.53 points on Monday, marking its sharpest single-session decline since March 2020, according to data from Bloomberg. lefigaro.fr reported that the drop followed a surprise decision by ratings agency Moody’s to maintain France’s credit rating, temporarily easing market pressure after yields had climbed to multi-year highs.
Investors demand this yield gap, known as the spread, as extra compensation for lending to France instead of Germany, which remains the euro zone’s safest borrower. The spread reached 1.74 points at close last week and touched 1.78 points during trading, marking its highest level since 2011. Guillaume Chaloin, head of equity management at Delubac AM, noted that Moody’s decision tempers concerns regarding the French budget and financing costs, as reported by lefigaro.fr.
French Ten-Year Yields Fall Back Under the Five Percent Threshold
Following the rating announcement, the French ten-year borrowing rate dropped back to 4.90 percent from 5.02 percent on Friday. The rate had breached the psychological 5 percent threshold last week for the first time since 2002. Meanwhile, the equivalent German ten-year rate remained nearly stable at 3.37 percent.
Moody’s left France’s credit assessment at Aa3 on Friday evening, defying widespread market expectations of an immediate downgrade. However, the agency retained a negative outlook on the sovereign debt. Moody’s stated that its Aa3 rating, which designates good quality debt, relies on the assumption that a 2027 budget reducing the public deficit will be adopted and that social tensions will moderate in coming months. Competing agencies Fitch and S&P currently rank France at A+, which denotes medium-high quality debt, as detailed by lefigaro.fr and zonebourse.com.
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