Global Economy & Markets, Weekly Roundup 21/10/25
France’s sovereign credit rating continues to move lower due to concerns regarding its debt trajectory, with euro area periphery bond spreads (Italy, Spain and Greece) near multi year lows
In an unscheduled action, the S&P Global Ratings downgraded France’s credit rating by one notch to A+ (stable outlook) on Friday. Although the official target for a general government balance of -5.4% of GDP in 2025 from -5.8% in 2024 is expected to be met, only a marginal improvement is envisaged for 2026 to -5.3%, followed by -5.6% in 2027 and -5.7% in 2028.
The gross debt is projected to reach 121.3% in 2028 (as % of GDP) versus 113.0% in 2024 and 98.2% in 2019. Attention now turns to France’s credit assessment by Moody’s, due on October 24th (current: Aa3, with a stable outlook).
Previously, Prime Minister Lecornu had survived two confidence votes in Parliament, after securing the backing of the Socialist Party. The latter though came via major concessions, mainly the postponement of the pension reform, which adds to the already existing challenges for the medium to longer term fiscal prospects.
In Italy, the draft Budget for 2026 also entered deliberation in the legislature. The target for the general government overall balance was set at -2.8% of GDP, from -3.4% in 2024 and -3.3% in 2025 according to recent estimates by the IMF.
The IMF envisages further consolidation to follow, with a balance of -2.7% in 2027 and -2.3% in 2028. The general government gross debt is projected to reach 137.9% in 2028 (as % of GDP) versus 135.3% in 2024 and 133.9% in 2019. DBRS upgraded the Republic of Italy to A (low) from BBB (high).
Italy’s draft Budget includes a tax increase for Banks and insurance companies, of c. €4.4bn for 2026. The market reaction for Italian Financials was measured, as such a development was expected, while measures to partly stem the impact on Financials’ balance sheets are also deliberated. Indicatively, the stock price of Intesa Sanpaolo fell by -1.5% wow, while UniCredit decreased by -1.3% wow, mostly on Friday due to the (short-lived) credit risk concerns regarding US regional banks.
French government bond yield spreads over the German Bund have stabilized at elevated levels of 78 basis points (bps) at the 10-year tenor (-4 bps year-to-date), while their Italian counterparts (BTPs) have narrowed by -35 bps year-to-date to 80 bps.
In a similar vein, the 10-year Greek government bond spreads have narrowed by 20 bps to 65 bps, hovering near multi-year lows, with the sovereign rating affirmed at BBB (stable outlook) by Standard & Poor’s on October 17th.
Global equity markets were mostly up on a weekly basis (MSCI ACWI: +1.2% wow), albeit with volatility towards the end of the week. The latter came after some US regional Banks pointed to losses due to non-performing loans, leading to broader, albeit short-lived, credit risk concerns.
Chair Powell echoed comments he made following the Fed’s mid-September meeting, noting that the “downside risks to employment” have shifted the balance of risks in the economy. As a result, the US 10-year Treasury yield declined to 3.97% (-60 bps since end-May), at its lowest level since October 2024, while the 2-year yield declined by -5 bps to 3.46%.
In an unscheduled action, the S&P Global Ratings downgraded France’s credit rating by one notch to A+ (stable outlook) on Friday. Although the official target for a general government balance of -5.4% of GDP in 2025 from -5.8% in 2024 is expected to be met, only a marginal improvement is envisaged for 2026 to -5.3%, followed by -5.6% in 2027 and -5.7% in 2028.
The gross debt is projected to reach 121.3% in 2028 (as % of GDP) versus 113.0% in 2024 and 98.2% in 2019. Attention now turns to France’s credit assessment by Moody’s, due on October 24th (current: Aa3, with a stable outlook).
Previously, Prime Minister Lecornu had survived two confidence votes in Parliament, after securing the backing of the Socialist Party. The latter though came via major concessions, mainly the postponement of the pension reform, which adds to the already existing challenges for the medium to longer term fiscal prospects.
In Italy, the draft Budget for 2026 also entered deliberation in the legislature. The target for the general government overall balance was set at -2.8% of GDP, from -3.4% in 2024 and -3.3% in 2025 according to recent estimates by the IMF.
The IMF envisages further consolidation to follow, with a balance of -2.7% in 2027 and -2.3% in 2028. The general government gross debt is projected to reach 137.9% in 2028 (as % of GDP) versus 135.3% in 2024 and 133.9% in 2019. DBRS upgraded the Republic of Italy to A (low) from BBB (high).
Italy’s draft Budget includes a tax increase for Banks and insurance companies, of c. €4.4bn for 2026. The market reaction for Italian Financials was measured, as such a development was expected, while measures to partly stem the impact on Financials’ balance sheets are also deliberated. Indicatively, the stock price of Intesa Sanpaolo fell by -1.5% wow, while UniCredit decreased by -1.3% wow, mostly on Friday due to the (short-lived) credit risk concerns regarding US regional banks.
French government bond yield spreads over the German Bund have stabilized at elevated levels of 78 basis points (bps) at the 10-year tenor (-4 bps year-to-date), while their Italian counterparts (BTPs) have narrowed by -35 bps year-to-date to 80 bps.
In a similar vein, the 10-year Greek government bond spreads have narrowed by 20 bps to 65 bps, hovering near multi-year lows, with the sovereign rating affirmed at BBB (stable outlook) by Standard & Poor’s on October 17th.
Global equity markets were mostly up on a weekly basis (MSCI ACWI: +1.2% wow), albeit with volatility towards the end of the week. The latter came after some US regional Banks pointed to losses due to non-performing loans, leading to broader, albeit short-lived, credit risk concerns.
Chair Powell echoed comments he made following the Fed’s mid-September meeting, noting that the “downside risks to employment” have shifted the balance of risks in the economy. As a result, the US 10-year Treasury yield declined to 3.97% (-60 bps since end-May), at its lowest level since October 2024, while the 2-year yield declined by -5 bps to 3.46%.