Moody’s Warns France as Markets Punish Nation's Debt

As yields climbed on French debt Tuesday, investors decided they had made up their minds about the country's creditworthiness: whether or not Moody's cuts France's triple-A rating, bond buyers are already demanding higher premiums for their funds. Moody's did warn Paris on Monday that its credit outlook might be in jeopardy, while a London strategist said the country's debt "isn't trading like a triple-A."

Bloomberg reported that despite two rounds of budget cuts proposed since August by French President Nicolas Sarkozy, the yield on French bonds has been steadily increasing. While both Moody's and Standard & Poor's have kept the country's credit rating at its current triple-A status, each has warned that a downgrade might be coming. France's debt level stands at 85% of GDP, the highest among top-rated eurozone countries, and with elections looming, there is doubt that the budget cuts will succeed.

Investor behavior is having its effect, regardless of ratings agencies. Bill Blain, a strategist at Newedge Group in London who recommends buying U.K. sovereign debt that currently trades more than a full percentage point below that of France, was quoted saying, "France isn't trading like a triple-A. The market has made its judgment already." Richard McGuire, a fixed-income strategist at Rabo Bank International in London, said in the report, "The market is concerned about the dissolution of the euro itself, hence only Bunds are acting as a safe haven."