Moody’s Keeps France’s Aa3 Rating

Moody’s maintained France’s sovereign credit rating at Aa3 on Oct. 23, keeping the outlook negative. Many in the market had expected a downgrade to A1, but none came.

Aa3 is the fourth-highest rating Moody’s assigns. A negative outlook means a downgrade remains possible, not that one is decided.

The announcement was the result of a periodic review, not a formal rating action. Moody’s said keeping the rating assumes a deficit-reducing 2027 budget passes and financing costs and social tensions ease somewhat in the coming months.

Market unease had already built before the decision. France’s 10-year bond yield rose to 5.14% on Oct. 22, its highest since July 2002. The gap over German bonds widened sharply.

The French government welcomed the decision. Prime Minister Sébastien Lecornu said it overturned gloomy predictions. Economy and Finance Minister Roland Lescure said it recognized the credibility of a budget aimed at restoring public finances.

But passage of the budget itself remains uncertain. The social security budget failed its first reading on Oct. 23, and prospects for the main budget are unclear. This year’s deficit is projected at 5.4% of gross domestic product, with national debt reaching 119.3% by year-end and 121.7% in 2027.

The next point to watch is the resumption of budget review on Oct. 27. S&P reviews France again on Nov. 27, and Fitch next February.