(Bloomberg News) Standard & Poor's roiled global equity, bond, currency and commodity markets when it sent and then corrected an erroneous message to subscribers suggesting France's top credit rating had been downgraded.
The benchmark Stoxx Europe 600 Index extended its decline to 1.5 percent to 234.11 and French 10-year bond yields surged as much as 28 basis points to 3.48 percent, the highest level since July, after the mistaken announcement. The euro pared gains and U.S. equities briefly dropped. Commodities erased gains before resuming increases after S&P affirmed France's AAA rating in a later statement.
A downgrade of France's credit rating would affect the rating of the European Financial Stability Facility, the bailout fund for struggling euro member countries that has funded rescue packages for Greece, Ireland and Portugal partially through bond sales. If the EFSF has to pay higher interest on its bonds, it may not be able to provide as much funding for indebted nations.
"It was a mess," said Lane Newman, the New York-based director of foreign exchange at ING Groep NV, the biggest financial-services company in the Netherlands. "It calls into question the credibility of people who can have that sort of impact not really being careful."
France also has the top rating from Moody's Investors Service and Fitch Ratings. S&P's error came after Sean Egan, president and founding principal of Egan-Jones Ratings Co., said earlier today that his namesake firm may lower France's credit rating. Egan-Jones currently rates France AA-.
The euro rose 0.4 percent to $1.3602 at 3:29 p.m. in New York after paring its gain to $1.355. The S&P 500 Index dropped as much as 0.1 percent to 1,227.7 after the erroneous announcement and the S&P GSCI Total Return Index of 24 commodities weakened 0.4 percent before gaining 0.9 percent.
The additional yield investors receive for holding French 10-year bonds instead of benchmark German bunds jumped to a euro-era record 170 basis points and was at 169 basis points when the market closed at 5 p.m. London time. Yield spreads between the German debt and Austrian and Belgian bonds also reached records today.
S&P's erroneous message was put out at 3:57 p.m. Paris time. The company sent a release at 5:40 p.m. Paris time saying the message was incorrect and affirming France's rating.
Technical Error
"As a result of a technical error, a message was automatically disseminated today to some subscribers of S&P's Global Credit Portal suggesting that France's credit rating had been changed," S&P said in the release. "This is not the case: the ratings on Republic of France remain 'AAA/A-1+' with a stable outlook, and this incident is not related to any ratings surveillance activity. We are investigating the cause of the error."