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UPDATE 2-French yields near 7-month low Macron awaits first rating review
June 23, 2017 / 12:02 PM / 3 months ago

UPDATE 2-French yields near 7-month low Macron awaits first rating review

* Some analysts expect outlook upgrade from Moody’s

* Moody’s rates France Aa2 with stable outlook

* Analyst says labour reform crucial for rating

* Euro zone periphery bond yields: tmsnrt.rs/2ii2Bqr (Updates prices)

By John Geddie

LONDON, June 23 (Reuters) - French benchmark government bond yields held near a seven-month low on Friday on hopes of a credit outlook upgrade at France’s first ratings review since Emmanuel Macron won the presidency and a large parliamentary majority.

One of the big three ratings firms, Moody‘s, is set to publish its review for its Aa2 rating with a stable outlook after European markets close.

Macron has pledged to tackle unemployment, seen as one of the main hurdles for France’s ailing economy. Through various labour reforms he aims to cut the jobless rate to levels not seen for more than two decades by the end of his term.

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

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

France’s 10-year bond yield was flat on the day at 0.6 percent on Friday, near a seven-month low of 0.578 percent hit nine days ago.

At about 34 basis points, the gap to the benchmark German equivalent was around the lowest since November.

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

Ratings agency S&P’s chief economist said this month that it is likely to raise its 1.5 percent growth forecast for France.

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

“(Macron‘s) labour reforms are going to be a key determinant of whether we see upward pressure ... in terms of France’s rating,” Rabobank strategist Richard McGuire said.

“There is certainly a lot of positive sentiment. That is all hope rather that reality and I suspect (ratings) agencies would want to see some of that reality before they make a move.”

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

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Editing by Louise Ireland)

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