In the wake of the French elections, investors are grappling with a lack of a clear winner and an extended period of political wrangling, leading to a mixture of relief and concern. The recent vote has brought relief to investors who speculated that major policy changes would be unlikely while the government remained deadlocked.

French stocks advanced on Monday, following a broader upward trend in the European market. Bonds and the euro also posted slight movements. While concerns over the country's debt burden persist, benchmark bond spreads have tightened in recent times as it seems improbable that the far-right or far-left will be able to push through their ambitious spending plans.

The CAC 40 Index rebounded from an early slump, gaining 0.4%. French bonds remained relatively stable, with the 10-year yield resting at 3.2%. The euro, after a seven-day ascent, steadied around 1.084 against the U.S. dollar.

"It's unlikely radical reforms will come through," noted Alexandre Hezez, chief investment officer at Group Richelieu. "Because there likely won't be any structural reforms on spending either, the wide spread on French debt will be maintained. But for other asset classes, it's the scenario which triggers fewer changes."

The final round of voting on Sunday revealed that France is heading towards a prolonged period of political uncertainty. While the left-wing alliance secured the largest presence in the lower house, it falls short of the majority needed for overall control. President Emmanuel Macron's group came in second, with Marine Le Pen's National Rally trailing in third place.

Although money managers had been concerned about a Le Pen-dominated government, the success of the left alliance is also worrisome for investors, as it introduces a fresh dose of uncertainty to the euro-area's second-largest economy. However, the left coalition lacks an absolute majority, limiting its capacity for substantial action. Some strategists view a hung parliament as a positive outcome for investors.

The gap between 10-year French and German yields, which measures credit risk, currently stands at around 65 basis points, lower than the levels seen during last month's market rout.

"If there is no government capable of taking action, it might not be so bad, as the reforms would not be rolled back and no tax giveaways would be handed out," explained Edgar Walk, chief economist at Metzler.

The New Popular Front, comprising the Socialists and far-left France Unbowed, emerged with 178 seats in the National Assembly, according to data from the Interior Ministry. Marine Le Pen's National Rally, previously seen as the likely winner, secured third place with 143 seats, while President Macron's centrist alliance notched up 156 seats.

In June, French markets experienced significant turmoil, with billions of euros wiped out from stocks and bonds as a result of Macron's snap poll, which raised concerns about a potential far-right government. However, a substantial portion of those losses has been recouped over the past week as opinion polls indicated that the National Rally would fall short of an outright majority. The CAC 40 Index managed to recover about half of the losses suffered after the announcement of Macron's election.

The potential outcomes of the elections remain unclear, creating confusion among investors. The bond markets, in particular, may face pressure if the new government does not clarify its fiscal position. Vincent Juvyns, global market strategist at J.P. Morgan Asset Management, anticipates tensions arising from the doubts surrounding Macron's reforms, which could impact the value of French bonds compared to their counterparts.

As France confronts its budget deficit, already exceeding the limits imposed by the European Union, concerns over the nation's fiscal stability persist. S&P Global Ratings downgraded France in late May, highlighting the government's inability to control the budget deficit in light of significant spending during the Covid pandemic and energy crisis.

Looking forward, the uncertainty surrounding the French elections will continue to influence investor sentiment and the fate of the country's financial markets.