Moody's holds France at Aa3 after a week of 5 percent yields

What happened

Moody's left France's credit rating at Aa3 with a negative outlook on the evening of Friday 23 October, after most economists had expected a cut. ^{[1, 2, 6]}

The agency published the result of a scheduled review after New York markets closed and said the announcement was not a formal rating action, Seoul Economic Daily reported. Moody's said the grade assumes a 2027 budget that reduces the deficit will be adopted, and that borrowing costs and social tensions will ease somewhat in the coming months, according to Euronews. ^{[1, 2]}

Why it matters

Moody's is now the only one of the three large agencies still rating France in the Aa range: S&P Global and Fitch already rate it A+ with a stable outlook, ABC Bourse reported. A negative outlook means a downgrade remains possible at a later review. France's debt stands at around 120 percent of its economic output, Euronews reported. ^{[7, 1, 6]}

The week behind it

France's ten-year borrowing rate reached 5 percent on Wednesday 21 October for the first time since July 2002, Reuters reported. Euronews put the Wednesday level above 5.1 percent, so the two reports differ on the peak. ^{[4, 1]}

On Friday 23 October the yield ended at 5.018 percent, down 6.2 basis points on the day but up 16.7 for the week, investingLive reported. A basis point is a hundredth of a percentage point. The gap over German ten-year debt widened by 24.1 basis points over the week, the same report said. ^[5]

Protests over the cost of living had turned into the worst street violence in years the weekend before, Euronews reported. Prime Minister Sebastien Lecornu said the police deployment for the protests of Saturday 24 October would be 'massive', according to a dpa report in the Qatar Tribune. ^{[6, 8]}

The budget it hangs on

Lecornu is seeking 43 billion euros in spending cuts without a majority in Parliament, Euronews reported. The National Assembly has rejected the revenue part of the 2027 Social Security budget, Entrevue reported. Economy Minister Roland Lescure called adopting, by the end of the year, a budget that brings the deficit down to 5 percent 'non-negotiable', Euronews reported. ^{[6, 3, 1]}

What settles it next

The 2027 state budget is still before the National Assembly, and ABC Bourse reported that its adoption before the end of December is uncertain. Moody's said further evidence that Parliament cannot act to stop a steep rise in the cost of the debt would likely lead to a downgrade, Seoul Economic Daily reported. ^{[7, 3, 2]}

Who it reaches

No company in the desk's record is tagged: the decision is about the French state's own debt. The ten-year rate is used to set borrowing costs across the French economy, so businesses and households can pay more when it rises, Euronews reported. ^[6]