Alice Gledhill

(Bloomberg) -- France is heading into a new season of political brinkmanship that will test investors' patience with a showdown over the country's towering debt.

France is heading into a new season of political brinkmanship that will test investors’ patience with a showdown over the country’s towering debt.

Investors haven’t been able to enjoy a summer lull as Federal Reserve Chairman Kevin Warsh and US Treasury Secretary Scott Bessent have kept them busy with a series of eye-catching policy decisions.

Even eight months out from France’s presidential election, the country’s assets are already starting to show signs of pressure.

In equity markets, the myth goes that the only way is up. That perception has gained traction as global stock prices have largely ignored the selloff in bond markets. Yields on long-dated government debt have surged to near two-decade highs as investors worry about whether inflation and fiscal deficits can be tamed, and as sovereign bonds compete with an AI-fueled corporate borrowing boom.

Soaring energy prices and growing political risks are sending the cost of borrowing sharply higher for many European governments.

Investors are underestimating the scale of rate hikes needed to tackle inflation given upward pressure on prices, according to Deutsche Bank AG strategist Henry Allen.

Schroders Plc is betting Hungary’s push toward euro adoption will deliver fast convergence-trade gains as the country’s government yields move toward those of peers already in the currency union.

Investors who loaded up on European and UK government bonds in recent months are likely regretting that decision after a sharp selloff, according to Bank of America.

Bond traders are making an unusual judgment about risk in French financial markets: they believe collateralized bank bonds are safer than government debt.