French central bank Governor Christian Noyer said Moody’s Investors Service was wrong in its reasoning for revoking the nation’s top credit rating last week.
Moody’s made a “factual mistake” in judging France’s exposure to peripheral countries in Europe and the country has substantially reduced risks, Noyer said today at a press briefing in Hong Kong. Noyer said the ratings company also made a “serious misconception” in its opinion that France doesn’t have access to a national central bank to assist in case of a market disruption.
“We have one of the most liquid and efficient bond markets in the world,” Noyer said.
Moody’s said Nov. 19 that France’s trade and banking exposure to peripheral Europe is “disproportionately large, and its contingent obligations to support other euro area members have been increasing.” The nation also has “deteriorating economic prospects, both in the short term due to subdued domestic and external demand” and “structural rigidities” in the longer term, Moody’s said in a statement.
Eleanor Sheung, a spokeswoman for Moody’s in Hong Kong, didn’t immediately respond to a request for comment on Noyer’s remarks today.
Bond-market history indicates that the utility of sovereign ratings may be limited. Almost half the time, yields on government bonds fall when a rating action by Standard & Poor’s and Moody’s suggests they should climb, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s.
After S&P stripped France and the U.S. of AAA grades, interest rates paid by the countries to finance their deficits dropped rather than rose.