The selloff comes ahead of Moody's sovereign rating review around 5 p.m. New York time on Friday, where market pricing reflects a base case one notch downgrade from Aa3 to A1 with a stable outlook. ING's Carsten Brzeski told Reuters the European Central Bank could deploy its crisis tools to shield the rest of the euro zone while leaving France out in the cold.
The bond rout has spilled into equities and European banks, which provide 70% to 80% of external corporate financing in the euro area. France's CAC 40 index fell more than 1% on Friday, extending its drop since August past 11%, as violent cost of living protests, political gridlock over €43 billion in proposed 2027 budget cuts, a budget deficit above 5% and public debt near 119% of GDP weigh on French assets ahead of the May 2027 presidential election.