German government bonds are opening higher Tuesday in the wake of Moody’s decision late Monday to downgrade France’s government bond rating by one notch to Aa1 from Aaa, leaving the outlook negative. Moody’s said its decision reflected the risk to France’s economic growth and its growing credit exposure to the euro area debt crisis. The Moody’s downgrade plays catch-up to S&P’s decision to strip France of its AAA rating on Jan 13. Fitch last affirmed France’s ‘AAA’ sovereign rating on Dec 16, 2011 and revised outlook to negative. “In the absence of material shocks, the Outlook is unlikely to be resolved until 2013”, said Fitch. So far, the impact of the Moody’s downgrade on France has been muted, with 10-year OAT/Bund yield spread 4bps wider at +64bps. Elsewhere, Moody’s in a separate report also said the outlook for Italy’s banking system remains negative. Volumes are seen light ahead of the key eurogroup meeting and also comments from Fed Chairman Ben Benanke later this session. Ahead of this, focus is on Spain’s 12-/18-mth T-bill, EFSF sells 6-month bills & UK sells 2017 Gilt.
EasyForexNews Research Team