French Bond Yields Pull Back From 2002 Highs After Moody's Holds France's Sovereign Rating

French government bonds rallied Monday after Moody's opted on Friday to maintain France's sovereign credit rating, sparing the country a downgrade that markets had feared. The 10-year French bond yield fell 5.3 basis points to 4.9685%, retreating from levels last seen in 2002, and French bonds outperformed most other eurozone peers as Treasury yields turned modestly higher on the day.

The relief came after a turbulent stretch marked by a sharp selloff in French debt, elevated energy prices tied to the Iran war, and mounting fiscal concerns. Weekend protests also passed without the civil unrest seen the prior week, adding to the calmer tone. Bloomberg reported that Australia pension funds moved into the French bond market during the rout, buying where others pulled back.

Attention now shifts to the European Central Bank's October meeting on Thursday, where policymakers are widely expected to hold interest rates steady. Elevated energy costs and financial stress in France are complicating both the inflation and growth outlook, limiting the ECB's room to act. The U.S. Federal Reserve's rate decision is also due this week, keeping broader fixed-income markets on edge. Meanwhile, Brazilian dollar-denominated bonds led losses across emerging markets after Lula's surprise election victory added a separate source of pressure to the asset class.