The Downgrade the Bond Market Priced Did Not Come. Moody's Held France on a Budget Its Parliament Is Dismantling.
Moody's left France at Aa3 on Friday after the New York close, outlook still negative, and the bond market had priced a one-notch cut that would have aligned it with Standard and Poor's and Fitch.
The hold is not the story. Moody's conditioned the Aa3 on a deficit-reducing 2027 budget being adopted - and the lower house spent last week scrapping savings measures from that budget, with opposition parties resisting compromise and a no-confidence vote possible. It also expects financing costs and social tensions to ease, and the week ran against all three assumptions. One reader reports Moody's saying this was not a formal credit rating action at all, which makes the reprieve weaker news than it reads. We also mark down our own work: on 22 October we published four readers putting the French ten-year between 5.076 and 5.13 per cent, and a fifth puts Thursday's high at 5.14 - one basis point outside the top of our band, on the single number the whole French story is quoted through. And a publisher's one page gave the German ten-year as 3.34, 3.32 and 3.31 in three sections, which is the leg carrying 15.3 per cent of the decomposition we published, so we are dropping the decimal place. The channel into the yen is Japanese institutional selling of French paper, single-sourced. The week: FOMC 18:00 UTC on 28 October, ECB 13:15 on 29 October, Bank of Japan around 03:00 on 30 October - and the ECB's UTC hour moved an hour later while its local time did not change.