Core Viewpoint - French and UK bonds are experiencing one of their best weekly performances this year, driven by a market risk-off sentiment due to concerns over the health of U.S. regional banks [1] Group 1: Bond Market Performance - French 10-year government bond yields have dropped by 16 basis points to 3.32%, the lowest level since August of last year, due to the postponement of President Macron's pension reform plan [1] - The borrowing premium of France relative to Germany has decreased by 5 basis points to 78 basis points, marking the largest contraction since June [1] - UK 10-year government bond yields fell by 18 basis points, dropping below 4.50% for the first time in three months, influenced by rising unemployment and expectations of continued loose monetary policy from the Bank of England [1] Group 2: Political and Economic Context - The postponement of the pension reform plan by French Prime Minister Sébastien Lecornu has mitigated immediate risks of government collapse and has garnered support from Socialist Party members [1] - The political crisis in France, which nearly led to early elections, has provided a temporary respite, although significant risks remain regarding budget consensus among divided lawmakers [2] - The UK is facing a budget proposal next month, with Chancellor Rachel Reeves indicating intentions to control spending within limited policy space [2] Group 3: Credit Rating Concerns - The political stability achieved by Lecornu may complicate France's path to fiscal consolidation, a key focus for credit rating agencies [3] - Moody's is set to release an assessment report next week, which could pose a challenge for France if pension reform setbacks lead to a downgrade [3] - Currently, France holds an average credit rating of AA, but a downgrade could force investors with rating restrictions to sell French bonds [3]