Global Credit Bullets | Monday, 12 October 2026

In our latest piece (The Algebris Bullet | Financial Rebellion – Algebris Investments) we argue that financial repression is increasingly turning into investor rebellion, with bond risks potentially being overpriced and creating more attractive opportunities in duration. While fiscal risks remain significant and stronger AI-driven productivity could keep rates higher for longer, increasingly hawkish positioning, pressure on risk assets and tighter financial conditions are improving the asymmetry of owning duration. Central banks are behind the curve but have started hiking. Over time, higher front-end rates are likely to restore credibility. US inflation has remained above target for the longest period in recent history, while long-end bond yields have diverged from policy rates as a result. As the global hiking cycle gains momentum, support for long bonds is likely to increase. At the same time, credit spreads remain historically tight, arguing for selectivity rather than broad exposure. We maintain a cautious approach to higher-yielding credit, keeping exposure low and limiting it to well-anchored issuers.

France was in the spotlight last week after Marine Le Pen unveiled an economic plan aimed at reducing the fiscal deficit from 5.4% of GDP to 3% over four years. Although some of the measures included in the plan are debatable, we view this fiscal shift as significant, particularly as Le Pen’s economic platform had remained unclear until now. With opinion polls suggesting that Le Pen is currently the frontrunner for the presidential nomination, markets found some relief in the announcement. However, implementing the proposed deficit reduction will not be straightforward, especially amid ongoing strikes and protests across the country. Nevertheless, fiscal consolidation is becoming increasingly necessary, as the deterioration in French public finances represents a growing vulnerability for European debt markets.

President Meloni succeeded in passing the long-awaited electoral reform, paving the way for elections in 2027. Current polls suggest that the right-wing coalition remains the favourite, although its lead over the left-wing coalition is relatively narrow. Italy’s fiscal deficit is projected to widen in 2027 and 2028, driven partly by higher energy and defence spending. The BTP–Bund spread has widened in recent weeks, in line with broader European sovereign spreads and credit markets. However, concerns are building that political uncertainty could intensify from the beginning of next year. A confirmation of Prime Minister Meloni would likely provide further stability to Italy, something the country has not experienced consistently in recent years. By contrast, an unexpected victory for the left-wing coalition could reignite market pressure, particularly at a time when elections across Europe are likely to dominate the political narrative.

Algebris Investments’ Global Credit Team