France’s 10-year notes are the third-worst performers this quarter -- behind only Greece and Belgium -- as traders speculate the European Financial Stability Facility will be used to insure the first portion of losses in the event of a sovereign default. France’s rating is under pressure, Moody’s Investors Service said yesterday. French bonds are being hurt as policy-makers consider using the guarantee to ensure Italy, the world’s third-largest bond issuer, and Spain can continue to access markets as contagion spreads from Greece. A downgrade of France will also limit the EFSF’s ability to hold a top grade, according to Moody’s.
Moody’s said it will monitor and assess its “stable” outlook on the nation’s debt over the next three months. In a separate statement dated today, Moody’s said that Europe’s central banks have “substantial capacity” to support lenders and sovereign debt markets. The so-called Eurosystem, headed by the European Central Bank, will continue to meet the liquidity needs of solvent euro area banks, Moody’s said.
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