US Yields Little Moved as French Bonds Gain After Moody's Keeps Rating

what happened

Dow Jones Newswires reported that US Treasury yields were mixed on Monday, while French government bonds outperformed after Moody's Ratings left France's credit rating unchanged. This week, investors will focus on Federal Reserve and European Central Bank rate decisions on Wednesday and Thursday. According to LSEG data, money markets price in a 90% chance both central banks hold rates steady this week, though they expect hikes in the coming months.

The two-year yield rose to about 4.712% after a 69 billion dollar two-year note auction cleared at 4.708%, with demand slightly softer than expected. The 10-year yield dipped below 5% to roughly 4.984%, still well off the 24-year high of 5.365% reached on October 7. The German 10-year yield closed at 3.355%, while the French 10-year fell 0.121 percentage points to 4.907%.

Moody's kept France at Aa3 with a negative outlook, assuming a 2027 budget that reduces the deficit is adopted. Many market participants had expected a downgrade.

why it matters

Investors have been shifting into safe havens over France's fiscal problems and fears that high oil prices could weigh on economic growth. Strategists note that central banks are generally reluctant to respond directly to an energy price shock, since higher rates do not add oil supply. The key question is whether higher energy prices remain a headline inflation issue or start feeding into core inflation.

market impact

US and French government bonds: Fed and ECB decisions this week will drive yield moves

tags

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