France has avoided a credit downgrade, but not the verdict of the bond market. Moody's kept the country's rating at Aa3 with a negative outlook after a scheduled review on Friday, 23 October, at the end of a week in which riots, a stalled budget and rising energy costs pushed French borrowing costs to levels not seen in more than two decades.
The yield on ten-year French government bonds reached 5.14 per cent on Thursday, its highest since July 2002, Reuters reported. The premium investors demand over German Bunds widened to its largest in 15 years; it had reached 159.4 basis points on Wednesday, up from about 85 basis points at the start of September. French borrowing costs already exceed those of lower-rated Italy.
A budget under siege
Moody's said its rating assumes that a deficit-reducing budget for 2027 will be adopted and that financing costs and social tensions ease somewhat. The draft budget targets a deficit of 5 per cent of output next year, down from 5.4 per cent in 2026. But the government lacks a majority, the lower house has already removed some savings measures, and opposition parties could bring it down in a confidence vote.
The pressure on markets follows a week of unrest. A nationwide march on 17 October drew about 550,000 people, according to police, and was followed by rioting in several cities. Carrefour cut its full-year profit forecast, blaming the disorder.
What comes next
S&P Global and Fitch have both already downgraded France. Analysts warn that if all three agencies eventually cut the country to the BBB range, forced selling by some investors could follow. The European Central Bank meets on 29 October, unions have called a national strike for 5 November, and the presidential election is due on 18 April and 2 May 2027.
