EURO GOVT-French CDS hit record high after U.S. downgrade

LONDON Mon Aug 8, 2011 7:59am EDT

LONDON Aug 8 (Reuters) - The cost of insuring French debt against default rose on Monday after a Standard & Poor's downgrade of the United State's triple-A ratings raised questions over how long other countries could hold onto their top-notch ratings.

"After the U.S. downgrade, others stand out as likely candidates too," BBH analysts said in a note. "We have long advocated downgrades for much of the periphery, but the U.S. move takes us outside of that and into 'core' countries."

"France has slipped into borderline AA+/Aa1/AA+ territory, so risks to its AAA are rising as stresses spread. "

Five-year credit default swaps (CDS) on French government debt rose 15.5 basis points on the day to 160 bps -- a record high -- according to data monitor Markit. This means it costs 160,000 euros to protect 10 million euros of exposure to French bonds.

If the market settles at those levels on Monday, France will see its largest daily jump since July 11, when CDS rose 14.7 bps.

An S&P official said France's rating was AAA and the outlook was stable, according to an interview published on Monday by French daily newspaper Liberation. (Reporting by Marius Zaharia and Emelia Sithole-Matarise)

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