French government bonds outperformed their eurozone peers in opening trade after Moody's Ratings left France's credit rating unchanged at Aa3, albeit with a negative outlook.
The decision came as investors weighed France's fiscal position and its ability to bring down its budget deficit. Although the rating was maintained, the negative outlook signals that Moody's sees risks to the country's creditworthiness over the coming period, and that further downgrades remain possible if conditions deteriorate.
Still, the stable rating gave bond buyers a degree of reassurance, and demand for French debt improved relative to other eurozone sovereigns in early trading. Traders had been watching the agency's decision closely, since a downgrade could have raised borrowing costs for Paris and reignited concerns about the wider eurozone periphery.
The result highlights how sensitive sovereign bond markets remain to rating actions, even when those actions leave a rating intact. Investors will now look to the French government's upcoming budget plans and its progress on reforms to judge whether the negative outlook is likely to be lifted or turned into a downgrade.
Source: Wall Street Journal Markets · Summarized by HeadlinesBriefing