Core Insights - French bonds have declined following a downgrade by S&P Global Ratings, which highlights the country's fiscal challenges and increases the risk of forced selling by certain funds [1][4] - The downgrade has resulted in France losing its double-A rating from two of the three major credit rating agencies within a month, raising concerns about the country's fiscal policies [4] - The political situation in France remains unstable, with Prime Minister Sebastien Lecornu managing to stay in office by suspending President Macron's pension reform, which was intended to improve public finances [5][6] Bond Market Impact - Yields on French debt have increased, particularly for longer-dated bonds, with 10-year yields rising by three basis points to 3.39%, contrasting with a one basis point increase in German yields [2] - The French-German 10-year bond yield spread, a key risk measure, has widened significantly, reaching almost 90 basis points earlier this month, before narrowing to around 78 basis points after recent political developments [6] Economic Outlook - The recent downgrade and political instability suggest that French bonds are under significant pressure, with elevated borrowing costs compared to peers, including lower-rated nations like Greece and Portugal [6] - Analysts indicate that the recent positive market reaction may be temporary, and the outlook for French bonds remains precarious [6]