City workers in the La Defense business district of Paris, France, on Thursday, Oct. 9, 2025.
(Bloomberg) — French bond futures declined after S&P Global Ratings downgraded its sovereign credit score, an unscheduled move that highlights the nation’s fiscal woes and places its debt at risk of forced selling by some funds.
Futures contracts for 10-year French bonds dropped 35 ticks to 122.80 in Asia trading, compared with a more modest move in their German counterparts. The euro was little changed after coming under pressure late Friday when S&P lowered the country’s score from AA- to A+.
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The downgrade means France has lost its double-A rating at two of the three major credit assessors in little more than a month, a step that risks compelling some funds with ultra-strict investment criteria to sell the country’s bonds. Fitch Ratings cut France’s score in September, with Moody’s Ratings due to release its verdict on Friday.
It also keeps the fiscal policies of the European Union’s second-largest economy under scrutiny as Prime Minister Sebastien Lecornu looks to push a budget through a divided National Assembly. He managed to remain in office last week, boosting local markets, but only after ceding to demands for the suspension of President Emmanuel Macron’s pension reform that aimed to bolster public finances.
“This surprise move is likely to add pressure on French bond spreads,” said Mohamed El-Erian, former Pacific Investment Management Co. Chief Executive Officer.
“Beyond raising borrowing costs and denting France’s economic standing, the downgrade shakes confidence at the very core of a region already in need of deeper structural reforms to revive productivity and growth,” El-Erian posted on X.
S&P’s move is the latest blow in a turbulent period for French debt. The nation’s borrowing costs have been elevated relative to peers ever since Macron called snap legislative elections last year that resulted in a hung parliament. The political impasse has driven up French bond yields to among the highest in the bloc, surpassing lower-rated nations such as Greece and Portugal,
The French-German 10-year bond yield spread — a key measure of risk — rose to almost 90 basis points earlier this month from fewer than 50 before the 2024 snap vote. The premium had narrowed to around 78 on Friday after Lecornu last week survived no-confidence votes by pledging to suspend Macron’s pension reform.
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Sebastien LecornuPhotographer: Benjamin Girette/Bloomberg
While that move helped stave off the risk of imminent elections, it complicates the nation’s path to fiscal consolidation — a key concern of credit agencies. S&P cited the suspended pension reforms in its decision.
“Uncertainty on public finances remains elevated ahead of the 2027 presidential elections,” the S&P report said, adding France is experiencing its most severe political instability since the founding of the Fifth Republic in 1958. “The absence of visibility on the fiscal consolidation plan weighs on France’s economic growth.”
The downgrade will likely reduce French bonds’ attractiveness for the most risk-averse asset owners — such as foreign public institutions like central bank reserve managers, as well as some pension funds — who seek out highly-rated assets.
BlackRock Inc., Vanguard Group Inc. and Legal & General Group Plc are among firms managing products that have objectives to hold securities that are scored double-A and above on average by major rating providers, according to documents reviewed by Bloomberg. Products with such criteria grew in popularity during Europe’s sovereign debt crisis as global investors sought to avoid distressed issuers.
To be sure, the vast majority of French bond holders will continue to be able to buy the debt after the downgrade. It remains firmly in investment-grade territory, a more common threshold when it comes to bond-fund criteria.
What Bloomberg Strategists Say…
“The fallout from the agency’s unscheduled announcement may be contained. Even after the downgrade, French bonds are unlikely to face widespread selling: its rating is still many notches above investment grade, and S&P has left its outlook at stable — meaning the prospect of another downgrade over the next year is unlikely.”
— Ven Ram, Macro Strategist. Read more here.
Still, the prospect of some forced sales when such funds rebalance comes on top of the broader hit to investor sentiment typically associated with credit-rating cuts.
Market focus will now turn to French budget negotiations. Lecornu relinquished using a constitutional tool known as Article 49.3 that previous governments relied on to bypass votes on financial legislation, raising uncertainty over how fractious lawmakers will be able to agree on the 2026 budget by the end of the year.
Another risk is Moody’s scheduled review on Friday. It currently rates France Aa3, its lowest double-A score, with a stable outlook.
–With assistance from William Horobin and Masaki Kondo.
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