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French yields near 7-month low ahead of Macron's first rating review
June 23, 2017 / 8:17 AM / 6 months ago

French yields near 7-month low ahead of Macron's first rating review

* Some analysts see outlook raise from Moody’s

* Moody’s rates France Aa2 with stable outlook

* Euro zone periphery govt bond yields

By John Geddie

LONDON, June 23 (Reuters) - French government bond yields held near seven-month lows on Friday as some analysts predicted a boost for the country’s credit rating at its first review since Emmanuel Macron won the presidency and a large parliamentary majority.

Moody’s -- one of the big three ratings firms -- is set to publish its review for its Aa2 rating for France, for which it currently has a stable outlook, after European markets close.

Macron, who beat far-right leader Marine Le Pen in May’s presidential run-off, has pledged to tackle one of the main hurdles to France’s ailing economy: unemployment. Through various labour reforms he aims to cut the jobless rate to levels not seen in more than two decades by the end of his five-year term.

Moody’s said on Monday that the parliamentary majority won on Sunday for Macron’s ‘En Marche!’ eased the path to reform, which is credit positive for the rating.

However, it added that the government still faces significant fiscal and economic challenges linked to France’s weak growth profile and high government debt.

“In France, a positive rating change by Moody’s would be premature but a move to the...outlook seems possible given the better GDP growth outlook and subsiding political risks,” said Christoph Rieger, rates strategist at Commerzbank.

French 10-year bond yields were a touch lower at just under 0.60 percent on Friday, heading back towards a seven-month low of 0.578 percent hit nine days ago.

At 34 basis points, the gap to benchmark German equivalents is around the lowest since November.

Other euro zone bond yields were little changed on the day.

The chief economist at rival ratings firm S&P said earlier this month that it is likely to raise its 1.5 percent growth forecast for France.

S&P are not scheduled to review their AA (stable) rating for France until October, but Fitch -- which also praised Macron’s parliamentary majority this week -- will reassess its AA (stable) rating at the end of next month.

A survey on Friday showed the recovery in French business activity eased more than expected in June, but companies took on workers at the fastest pace in nearly 10 years.

Moody’s is also due to review its Aaa rating for Germany and its Caa3 rating for Greece on Friday. Analysts at DZ Bank are calling for an upgrade to Caa2 for Greece after the country secured a debt deal with creditors earlier this month.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=

Editing by Toby Chopra

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