Yield on French government bonds retreated from multi-year highs after Moody’s kept the country's rating at Aa3 without downgrading.
Yield on French government bonds declined on Monday after the decision of the rating agency Moody’s. The agency confirmed the country's sovereign credit rating at Aa3 with a negative outlook, but did not downgrade it.
Ten-year OAT bonds fell below the 5.00% mark and reached 4.973%. This is a retreat from the 2002 highs recorded last week. Other yield indicators fell to 3.757%, moving away from 2008 levels.
The spread between French OATs and German bunds narrowed, although it had earlier approached the peaks of the euro crisis period above 155 basis points. Moody’s placed France’s rating on par with the UK, seven notches above junk level.
Despite this, investors remain concerned about the budget deficit of 5.4% of GDP. President Emmanuel Macron’s administration faces difficulties in cutting spending in the divided National Assembly. Social unrest and demonstrations against cuts in public services continue to threaten political stability.
Market attention is shifting to the European Central Bank meeting on Thursday. The base deposit rate is expected to remain unchanged. A Reuters poll shows the probability of a 25 basis point rate hike in December to 2.75%. Core inflation in September was 3.8%. ECB President Christine Lagarde called for a measured response amid risks to economic growth.
German bunds showed moderate dynamics. Their yield was fixed at around 3.039%.