Moody's holds France at Aa3, but the rating rests on a 2027 budget France's Assembly is stripping
Moody's held France at Aa3 with a negative outlook on Friday, October 23, defying the downgrade traders had priced in. The rating now rests on a deficit-cutting 2027 budget, the same bill the National Assembly is stripping of savings.
Vincent Jiang · 3 min read
The cut traders had priced never came
Moody's−1.55% — Moody's, down 1.55 percent today closed its review of France late on Friday, October 23, with the decision markets had stopped expecting: no change 1234. The rating stays at Aa3, the agency's fourth-highest grade, seven rungs above junk and level with the UK, negative outlook unchanged 1234. A cut to A1 was the consensus and would merely have matched the A+ that the rival agencies S&P and Fitch put on France in late 2025 3. Théophile Legrand, rates strategist at the French bank Natixis, had called the downgrade the "central" scenario, already largely in the price 1.
The market downgraded France first
The bond market had moved before the agency did. France's ten-year borrowing cost hit 5.14% on Thursday, October 22, its highest since July 2002, and the premium over German bunds sits at a 15-year high; France now borrows above lower-rated Italy 25. Germany pays about 3.4%, against roughly 3.2% for France before the US-Iran war: the extra charge is France's alone 1.
France pays 5.14% for ten-year money; Germany pays 3.4%
Data
| Value | |
|---|---|
| Germany | 3.4% |
| France, before the US-Iran war | 3.2% |
| France, this week | 5.14% |
The debt underneath: a deficit near 5.5% of GDP against the EU's 3% ceiling, debt headed for 121.7% of output in 2027, and more than $1 trillion maturing by 2030 2. At those rates, the interest bill crowds the same budget as schools and pensions 6.
Moody's tied the rating to a budget the Assembly is weakening
Moody's wrote its own caveat: the rating "assumes that a deficit-reducing budget for 2027 will be adopted" 5. The National Assembly, France's lower house, is doing the opposite, scrapping key savings from a bill that targets a 5% deficit against 5.4% of output this year 5.
Even the 2027 target deficit is two points above the EU's 3% ceiling
Data
| Deficit, % of GDP | |
|---|---|
| This year | 5.4% |
| 2027 budget target | 5% |
| EU ceiling | 3% |
Public Accounts Minister David Amiel complained that "billions are raining down and savings are mechanically wiped out to applause", with the social security deficit more than €5 billion worse during the bill's examination 1. Prime Minister Sébastien Lecornu read the hold as confounding the doom-laden experts 1. A rating conditioned on a budget the chamber is un-writing is not a reprieve, it is a deadline.
The hold leaves the short case intact
For anyone short French debt, little changed on Friday night. Natixis's Legrand calls the decision a welcome short-term surprise with downgrade risk "fully present", and BCA Research's Jérémie Peloso even allows an opportunistic "buy the dip" in French bonds 1.
Allspring portfolio manager Rushabh Amin expects the spread's decisive move over the six months into the presidential election on April 18 and May 2, which polls suggest the far right could win 5. Mike Bell, head of market strategy at RBC BlueBay, warns that a slide to BBB at all three agencies after the vote would force rating-limited funds to sell 5.
Protests resume Saturday after the October 17 riots: more than 500,000 marchers, 2,400 arrests, up to €200 million of looting losses at retailer Carrefour and a 16% fall in luxury group Kering 127. The reading that decides the trade is the bund spread when markets reopen on Monday 7.
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