[MARKET ANALYSIS] Gilts lead after soft GDP though BoE pricing largely unaffected, USTs treadwater

• A contained start for most benchmarks.
• Gilts are the relative outperformers after soft GDP data. The benchmark opened higher by 18 ticks before climbing another nine to a 91.30 peak and notching a fresh WTD high. Weighing on the UK's 10yr yield to a 4.47% trough. For the BoE, the data works in favour of the doves who wanted to cut last week and somewhat skews the narrative towards a March cut vs current pricing for April. However, pricing didn't really move as we await next week's CPI and employment/wage metrics; furthermore, while the series was weak, the economy was still resilient during a tumultuous Q4, a finding that tempers the otherwise dovish impulse.
• JGBs returned from Wednesday's holiday lower, reacting to the US NFP print and bearish UST action. Pressure that proved fleeting as the benchmark lifted to a 132.02 peak with gains of just over 10 ticks at best. However, that upside faded across the APAC session to a 131.52 trough. Drivers for this include a Reuters interview with Mizuho's Kozhimizu, who expects as many as three hikes by the BoJ in 2026, and a move as soon as March or April is entirely possible. As it stands, just 3.5bps of tightening is implied in March, 14bps in April and 23.6bps in June, with a move not fully priced until July, where 30bps is implied.
• Bunds firmer, but contained, in narrow 128.62-76 parameters. Specifics for the bloc light, no move to a handful of ECB remarks, which stuck to the script.
• A similar story for USTs, rangebound in APAC hours towards the mid-point of the post-NFP drop. Holding at 112-11+ in thin parameters that are well within Wednesday's 112-00 to 112-20 bound. Today, the US docket is comparatively light, with supply and weekly jobs the highlights. Barring a surprise on those, it may be a bit of a filler day into Friday's CPI.

The soft GDP data from the UK is driving a strong performance in Gilts, suggesting that the market is now skewing towards earlier monetary easing expectations from the BoE. While yields have dipped and some dovish sentiment is surfacing, the overall pricing remains stable as traders await upcoming CPI and employment data, indicating a cautious approach amidst mixed economic signals.