Ratings agencies suffer from a credibility problem, judging from market reactions to some of their most dramatic moves. France is a prime example, with investors flocking to snap up its bonds even more hungrily than they pursue German Bunds.
Bloomberg reported Monday that although it’s been eight months since S&P cut the French down to size, creditwise, investors have paid little or no attention and instead have been eager to invest in the country’s debt, driving yields down with their enthusiasm.
Standard & Poor’s downgraded France to AA+ from AAA back in January, along with rate cuts to eight other eurozone countries. The ratings agency cited the failure of policymakers to control the debt crisis in Europe and added that some countries’ refinancing costs could stay high.
But that has not been the case. France’s yields on 10-year bonds have dropped faster than the yields on either Bunds or Treasuries, and its 1.07 trillion euros ($1.4 trillion) in debt maturing in a year or more has gained 7.4%. That’s more than double the returns for the rest of the global government bond market, and even tops Britain, Germany and Australia.