France's AAA status in tatters as yields surge
Investors are not waiting for Standard & Poor’s or Moody’s to strip France, Europe’s second biggest economy, of its top credit rating.
By Bloomberg | Updated:
PARIS: Investors are not waiting for Standard & Poor’s or Moody’s to strip France, Europe’s secondbiggest economy, of its top credit rating.
The extra yield demanded to lend to AAA-rated France for 10 years was 154 basis points more than the German rate on Monday. The gap was 200 basis points on November 17, the widest spread since 1990.
The French 10-year yield is at 3.4%, about midway between toprated Holland and Belgium, which is graded one level lower at Aa1 by Moody’s. French borrowing costs are more than a percentage point above the AAA-rated UK. “France is not trading like a AAA,” said Bill Blain, a strategist at Newedge Group in London.
“The market has made its judgment already.” The debt crisis that began more than two years ago in Greece and snared Ireland, Portugal, Italy and Spain is close to reaching France.
Moody’s said in a report published on Monday that any persistent increase in borrowing costs would amplify the French government’s challenges as economic growth slows. President Nicolas Sarkozy has unveiled two sets of budget cuts since August to preserve the credit rating and try to calm jittery markets.
The extra yield demanded to lend to AAA-rated France for 10 years was 154 basis points more than the German rate on Monday. The gap was 200 basis points on November 17, the widest spread since 1990.
The French 10-year yield is at 3.4%, about midway between toprated Holland and Belgium, which is graded one level lower at Aa1 by Moody’s. French borrowing costs are more than a percentage point above the AAA-rated UK. “France is not trading like a AAA,” said Bill Blain, a strategist at Newedge Group in London.
“The market has made its judgment already.” The debt crisis that began more than two years ago in Greece and snared Ireland, Portugal, Italy and Spain is close to reaching France.
Moody’s said in a report published on Monday that any persistent increase in borrowing costs would amplify the French government’s challenges as economic growth slows. President Nicolas Sarkozy has unveiled two sets of budget cuts since August to preserve the credit rating and try to calm jittery markets.
Two-year yields on French debt have climbed 59 basis points to 1.7% since September 1, while the rate on German bunds of similar maturity fell 24 points to 0.4%.
“The market is concerned about the dissolution of the euro itself, hence only bunds are acting as a safe haven,” said Richard McGuire, a fixed-income strategist at Rabo Bank International in London. Germany is the region’s largest nation. French 10-year bond yields may climb above 5%, analysts at Credit Suisse Group said.
Euro leaders must reach ‘a momentous deal’ for fiscal and political union by mid-January to save the 17-nation bloc, Credit Suisse said in the report.
Yield spreads have widened for the other AAA-rated euro zone countries — Austria, Finland, the Netherlands and Luxembourg.
“The market is concerned about the dissolution of the euro itself, hence only bunds are acting as a safe haven,” said Richard McGuire, a fixed-income strategist at Rabo Bank International in London. Germany is the region’s largest nation. French 10-year bond yields may climb above 5%, analysts at Credit Suisse Group said.
Euro leaders must reach ‘a momentous deal’ for fiscal and political union by mid-January to save the 17-nation bloc, Credit Suisse said in the report.
Yield spreads have widened for the other AAA-rated euro zone countries — Austria, Finland, the Netherlands and Luxembourg.
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