Moody’s warning on French outlook hits bond markets

Julian Harris
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FRENCH authorities were warned yesterday that the country’s credit outlook could be hit by a sustained rise in its debt yields and lingering sluggish growth.

Yields on 10-year French government debt spiked as news of Moody’s analysis spooked markets, reaching over 3.6 per cent in early trading.

But yields subsided during the day, after analysts noticed that the warning concerned “the stable outlook, though not at this stage the level” of France’s gold-plated credit rating.

“A lot of the bad news was already priced in,” explained bond strategist Darren Ruane of Rensburg Sheppards.

“Yet French bonds still underperformed, given that the spread over [German] bunds widened.”

Yields on German 10-years were down 2.6 per cent, but French yields ended slightly up by 0.08 per cent. “It was definitely a ‘risk off’ day,” Ruane told City A.M. Yields on 10-year US Treasuries and UK gilts fell to 2.4 per cent and 2.25 per cent respectively, as investors sought relative safe havens.

Some analysts say the markets have effectively signalled a negative outlook for France already.