[MARKET ANALYSIS] Fixed benchmarks mixed, USTs incrementally firmer whilst Bunds await the ECB

• USTs are currently firmer by a couple of ticks and trades within a narrow 111-18+ to 111-24 range. Really not much driving things for the benchmark this morning, but focus has been on geopolitics. On Wednesday, it was reported that the US-Iran talks were cancelled due to Iran's refusal to engage in non-nuclear issues – but thanks to some lobbying via Arab officials, the talks are back on and will be conducted on Friday. Should talks fail on Friday, there is a chance the US chooses to enact a “limited” strike on Iran, which may spur inflows to US paper.
• Back to the US, the BLS provided an updated data schedule following the recent partial shutdown. JOLTS is set to be released today; NFP on Feb 11 and CPI on Feb 13. That aside, Jobless Claims is due today, with traders looking to see if the labour market remains in its recent “low hiring – low firing” environment.
• Bunds trade steady and in a narrow 127.88-128.07 range. Really not much driving things for the benchmark this morning aside from EZ Construction PMIs and Retail sales which had limited impact on price action. Ahead, the ECB is set to keep its deposit rate at 2.00% and likely to reiterate that the Bank is in a good place. Focus will be on the recent strength on the EUR and any comments related to potentially undershooting inflation.
• Gilts underperform. See the 09:11 analysis for details.

The mixed performance in fixed income benchmarks highlights market caution amid geopolitical developments, particularly regarding US-Iran talks that could affect demand for USTs. With USTs showing firmness amidst chatter of potential military action if diplomatic discussions falter, traders will also focus on upcoming U.S. labor market data. Meanwhile, Bunds remain steady as the ECB prepares to keep rates unchanged, with attention on the euro's strength and inflation outlook, suggesting a wait-and-see approach as monetary policy expectations solidify.