Core Insights - Major asset management firms are modifying investment rules to avoid forced selling of French government bonds following a downgrade in credit ratings [1][3] - State Street and BlackRock have adjusted their funds' benchmarks to allow continued holding of French bonds despite the downgrade [1][5] - The recent downgrade by S&P Global Ratings has led to concerns about potential forced sales by funds with strict investment criteria [3][7] Group 1: Investment Strategy Adjustments - State Street's fund, with a size of €1 billion (approximately $1.2 billion), and BlackRock's fund, sized at €289 million, have removed strict AA credit rating benchmarks [1] - BlackRock's ETF successfully avoided the impact of the French downgrade by adjusting its benchmark rules, which were previously stricter than other indices [3][5] - State Street's fund has shifted to a customized index that allows for more flexibility in investment criteria, with French bonds making up 39% of its holdings [5][6] Group 2: Market Implications - The downgrade of French bonds has raised concerns about potential forced sales, which could lead to high transaction costs and concentrated portfolios [3][4] - Despite the downgrade, French bonds remain within the investment-grade category, which is crucial for many bond funds [7] - Analysts suggest that if France's rating continues to decline, it may lose its favorable position among Eurozone issuers, potentially leading to higher bond yields [10]