Market News

(Bloomberg) -- France’s long-term borrowing costs are nearing the highest level in over a decade ahead of a possible downgrade of the nation’s sovereign rating on Friday.

The 30-year bond yield rose five basis points to 4.15% on Thursday, just one basis point away from the most elevated since 2011. The rate is up more than 40 basis points this month due to the selloff in European bond markets ignited by Germany’s plans to boost spending.

Fitch Ratings is schedule to review on Friday France’s AA- credit score, which holds a negative outlook since October. The firm last month issued a warning that the country’s fiscal consolidation had been scaled back, and since then the government has promised to increase defense spending, placing a further strain on public finances.

French markets were roiled last year following President Emmanuel Macron’s call for a snap election, almost doubling the premium on 10-year notes over safer German peers to more than 90 basis points. The spread has since fallen back to around 68 basis points after Prime Minister Francois Bayrou forced through a budget and survived subsequent confidence votes which befell his predecessor.

Still, Citigroup Inc. expects a downgrade will come eventually, and strategist Aman Bansal warns that if the rating is lowered to a single-A band, some investors would be forced to sell the securities. S&P Global Ratings also has France at AA- with a negative outlook, while Moody’s rates it at equivalent Aa3 with a stable outlook.