“Investors now treat France as it would be already downgraded to triple B”, said Jean-Michel Six, chief economist at Standard & Poor’s, in an interview published today in the French newspaper Parisien-Aujourd’hui. “To be degraded looks like what happens in high school when you go from a 20/20 to 19 (in France grades are up to 20. Grades of 16-17 are “very good”). At a time when the French government tries to minimize the expected degradation France rating – AAA now, the best possible – the rating agency official shows that “despite triple A, investors now treat France as it would be denoted by a Triple B rating”. These words makes, somehow, less significant the expected shock of downgrading France’s rating.
“France is financed on commercial terms more favorable than the BBB European countries, whether or not they are included in the financial aid program. Ten-year bond yields in Portugal, Cyprus and Ireland are in order, 14.68%, 12,25% and 8%, compared to France ‘s 3.38%” said Jean-Michel Six. He added: “There is no systematic correlation between a country’s credit rating and bond yields. We downgraded the United States, and their bond yields fell”.
Systematic correlation may not exist, only that by the examples just given, the official from S & P contradicts himself and only highlights the difference between an AAA and a BBB rating regarding the interest on the market!
Norbert Gaillard, World Bank consultant, says that if S & P downgrades the triple A rating of France, “some investors do only invest in AAAs will automatically pull out”.
On the first market output this year, France has borrowed 7.96 billion on Thursday through a bond issue with maturity from 10 to 30 years, the offer being oversubscribed nearly twice, the yield rising slightly. Investors asked higher interest rates in order to absorb securities auctioned by the French government because of fears that the country could lose its AAA rating amid debt crisis.
France drew the proposed amount of 8 billion and ten-year bond yields climbed to 3.29% from 3.18% at the last similar auction, on December 1st last year. 30-year securities yield rose to 3.97% from 3.94% in early December.
Treasury placed bonds of 4.02 billion euros for 10-years, and 2.165 billion euros, for 30 years. However, the French government sold 690 million debt maturing in October 2023 and 1.088 billion euro bonds maturing in April 2035. Total demand for the securities placed in the operation was 15 billion, almost twice the target amount.
