France's bonds and stocks surged after Moody's Ratings kept the nation's Aa3 rating steady with a negative outlook, pausing a recent selloff. Yields on 10-year OATs fell to 4.98%, narrowing the gap with German bonds. The CAC 40 Index rose 0.9%, outperforming European peers, while the euro held steady at $1.1205.
Moody's baseline assumption expects a deficit-reducing 2027 budget to be adopted despite political challenges. Barclays' Rohan Khanna called the decision a pleasant surprise but warned of upcoming ECB and Fed rate decisions and October inflation data as potential triggers. France's debt-to-GDP deficit is set to reach 5.4% this year, with Prime Minister Sébastien Lecornu's spending-cut and tax-raising bill facing parliamentary uncertainty.
The National Assembly recently rejected part of the 2027 social security budget, sending it to the Senate. Investor anxiety over political gridlock had pushed the French-German bond spread to 178 basis points, the highest since 2011. Jupiter's Piers Hillier expressed surprise at the hold, suggesting a downgrade may still be imminent.
France now remains one notch above S&P and Fitch, both of which downgraded during the 2025 budget clash.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing