Moody's keeps France at Aa3 but holds negative outlook

what happened

Moody's Ratings kept France's credit rating at Aa3 despite a steady rise in debt and political fragmentation that has made it hard to curb borrowing, Dow Jones Newswires reported on Friday.

The outlook stayed negative, with the agency pointing to political instability that could complicate fiscal consolidation. Moody's said debt will exceed 120% of GDP in 2027 and that a significant, sustained fiscal effort will be needed after the April and May 2027 presidential elections. The rating assumes a deficit-reducing budget for 2027 is adopted. Moody's stressed that this was not a credit rating action.

Fitch and S&P Global Ratings cut France to A+ in 2025, so Moody's rating remains one notch higher. Moody's had downgraded France from Aa2 to Aa3 in late 2024.

why it matters

The decision may ease pressure on borrowing costs, since investors received a signal that the fiscal picture has not deteriorated as much as feared. Still, the French premium over German bonds has risen to 170 basis points, and relief may be limited. The budget deficit is expected near 5.4% of GDP this year, and foreign investors hold almost 55% of French debt, which makes the market sensitive to shifts in confidence. S&P's next review is scheduled for November 27.

market impact

French government bonds and the euro: the hold eases pressure, but the negative outlook keeps spread risk versus Bunds

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