S&P Sees 33% Chance of French Debt Rating Cut Next Year

Standard & Poor’s, which stripped France of its top credit rating in January, said there’s at least a one-in-three chance the country will be lowered again next year.

S&P in a statement today affirmed France’s AA+ rating and maintained its negative outlook on the country. The ratings company’s actions come just days after Moody’s Investors Service on Nov. 19 cut France’s top Aaa rating by one level.

“The French government remains committed to budgetary and structural reform that would build on measures it has proposed so far to improve the country’s growth potential,” S&P said in the statement.

The ratings companies' actions have done little to dent the rally in French bonds. French debt securities have handed investors a return of about 8.8 percent since S&P’s January downgrade, or more than double the 3.9 percent gain from AAA rated sovereign bonds, according to Bank of America Merrill Lynch indexes. Top-ranked German bonds returned 3.1 percent.

The gains underscore how downgrades by credit-ratings companies are being shrugged off by investors. The U.S. has been deemed more creditworthy by investors since S&P removed the nation’s AAA grade in 2011, with 10-year note yields dropping to a record this year.

The yield on French 10-year bonds was little changed after the S&P statement at 2.175 percent as of 8:57 a.m. in Paris.

French Growth

S&P said it expects the French economy to expand 0.4 percent in 2013, or at half the government’s forecast.

The ratings company listed rigidities in the labor market, “relatively restrained” competition in some services industries and an overall high tax burden for France’s economic woes.

President Francois Hollande is starting to take steps to tackle France’s record trade deficit and high labor costs, saying this month that he’ll raise sales taxes to pay for a cut of 20 billion euros ($25.8 billion) in charges on business.

At a 2 1/2 hour press conference on Nov. 13, the Socialist president also pledged 60 billion euros in spending cuts over five years.

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.