Bloomberg News

French 10-Year Yield Erases Increase Since Moody’s Downgrade

November 28, 2012

France’s 10-year government bonds advanced for a fourth day, erasing the decline that followed Moody’s Investors Service’s removal of the nation’s Aaa rating less than two weeks after the downgrade.

The yield on the 10-year securities dropped eight basis points, or 0.08 percentage point, to 2.05 percent at 2:54 p.m. London time, compared with a closing yield of 2.07 percent on Nov. 19, before Moody’s cut France’s credit grade. The rate climbed to as high as 2.19 percent on Nov. 22.

France’s bonds have returned 8.9 percent since a similar downgrade by Standard & Poor’s in January, more than double the rest of the global government bond market, according to Bank of America Merrill Lynch indexes. The yield premium, or spread, investors demand to hold French 10-year securities instead of benchmark German bunds narrowed to 69 basis points, from as much as 153 basis points in January.

“I don’t think that credit issues are a driver right now,” said Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris. “If you’re looking at a spread that’s only 100 basis points over bunds, it’s likely that ratings are not that big an issue.”

Moody’s cut France’s credit rating one level to Aa1 and maintained its negative outlook, citing a worsening economic growth outlook. S&P lowered the rating by one level to AA+ from AAA on Jan. 13.

Since the January downgrade, global sovereign bonds returned 4.1 percent through yesterday, according to the Bank of America indexes. German bonds advanced 3 percent in the period, while U.K. gilts and U.S. Treasuries handed investors 2.3 percent, the indexes show.

About half the time, government bond yields move in the opposite direction suggested by new ratings, according to data compiled by Bloomberg in June on 314 upgrades, downgrades and outlook changes going back to 1974.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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