France avoids Moody’s downgrade after a week of turmoil

France has avoided a credit rating downgrade by Moody’s, a reprieve for a nation grappling with surging bond yields, political gridlock, and protests, Bloomberg reports.

Moody’s has kept the eurozone’s second-largest economy at Aa3, seven notches above junk and on a par with the UK. The outlook remains negative. “Slower growth and a higher deficit have pushed France’s debt burden somewhat higher than previously expected,” Moody’s stated, as quoted by Bloomberg. “Bond yields have risen more rapidly than we expected, while widespread social protests have erupted which could constrain fiscal consolidation efforts.”

France has yet to find a way to contain its growing debt burden, which has put the country at the center of bond-market concerns in recent weeks, Bloomberg writes. French government bond yields have risen more than those of any other developed economy this month, reaching a 24-year high. The rise in public debt is being fueled by a budget deficit expected to widen to 5.4% of GDP this year. Political gridlock, slowing economic growth, and rising debt-servicing costs have derailed the government’s efforts to repair public finances, Bloomberg notes.

French Prime Minister Sébastien Lecornu has proposed a budget that would sharply restrain spending and increase tax revenue to reduce the deficit to 5% of GDP next year. However, the government lacks a parliamentary majority. France’s National Assembly on Friday rejected the revenue portion of the 2027 social security budget. As a result, the original version of the bill will go to the Senate. Lawmakers in the lower house will resume debate on the main government budget next week.

“The 2027 budget process coincides with some of the most extensive social protests France has experienced in many years,” Moody’s stated. “Despite the challenging political and social environment, our baseline assumption is that a deficit-reducing budget for 2027 will eventually be adopted, possibly by decree.”

Heightened uncertainty has pushed a closely watched gauge of bond-market risk to levels last seen in the eurozone debt crisis. The yield spread between French and German 10-year government bonds, with German debt considered the region’s safe-haven asset, reached 178 basis points on Thursday. It stood at just 85 basis points at the start of September, before the selloff gained momentum.

Moody’s decision to leave France’s rating unchanged for now keeps its assessment one notch above those of S&P Global Ratings and Fitch Ratings. Both downgraded the country in autumn 2025, citing deteriorating public finances and political uncertainty over the budget. France also faced adverse rating reviews last month: Scope Ratings cut its credit rating, while Morningstar DBRS changed its outlook to negative. S&P’s next scheduled review of France’s rating is November 27.