France is at risk of losing its coveted AAA credit rating, according to Moody’s Investors Service.
The rating agency published a report noting that it may issue a negative outlook on the French sovereign debt rating in the next three months if the costs of providing financial assistance to other euro zone nations and/or banks places France’s budget in a precarious position. A negative outlook would indicate that France’s credit rating is at risk of a downgrade in the coming years.
In a statement, Moody’s warned that “The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government’s Aaa debt rating.”
Moody’s also noted that France’s debt metrics are now among the worst of its Aaa peers, although they are still supported by favorable “debt affordability,” or a relatively low interest burden when compared to the level of government revenues.
The warning by Moody’s stands in stark contrast to Standard & Poor’s and Fitch – the world’s other two major ratings agencies – which each reaffirmed France’s’ AAA rating in August and have not since published any additional reports.
Following the release of the report, French bonds tumbled, with the spread between French and German 10-year bonds reaching a new all-time high of 111 basis points. The euro currency also retreated, by 0.4% to 1.3681 against the U.S. dollar.
Joseph Capurso, a currency strategist at Commonwealth Bank of Australia, commented that “Europe’s problems are going to take years to resolve. One meeting is not going to fix it. Reality is setting in this week, and that’s going to see euro long positions being cut.”
Source; http://www.goldalert.com/2011/10/frances-aaa-credit-rating-at-risk-moodys-warns/
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