[MARKET ANALYSIS] USTs & Bunds near-enough flat, Gilts led before turning around, JGBs lag

• USTs and Bunds contained, Gilts led, JGBs lag.
• JGBs are lower by c. 40 ticks at the moment, with downside of just under 50 at most at a 131.32 session low. Action that comes after the BoJ and Ueda's presser where, in short, the narrative is that April is the earliest point for a hike, as Ueda specifically referenced seeing price behaviour for that period as a "factor to mull a hike". Though, JGBs remain markedly clear of their WTD 130.66 trough and by extension yields are off WTD highs. Nonetheless, the week's action, driven by fiscal commentary and the BoJ, has sparked a modest shift in market pricing; with 21bps of tightening currently implied by June vs c. 18bps last week; for April, its 14bps currently vs 11bps last week.
• USTs a tick or two higher in a very thin 111-19 to 112-23 band, awaiting the trilateral summit re. Ukraine (timing TBC), flash PMIs and the potentially imminent Fed Chair announcement.
• Bunds, in contrast, are a tick or two lower. But, also in a narrow 127.64-84 band. Modest two-way action on but no real move to the January Flash PMIs, as political uncertainty re. France and the latest geopolitical/tariff gyrations potentially making some of the responses redundant; as such, the revisions may hold greater sway than usual, though the global macro situation may well have changed significantly again by then.
• OATs are broadly in-line with core benchmarks. Towards the mid-point of 121.10 to 121.27 parameters. Today sees the no-confidence motions against PM Lecnornu after Tuesday's use of Article 49.3 to push the revenue-part of the budget through. Bills that should be defeated (i.e. confidence is found in Lecornu), but risks remain. Into this, the OAT-Bund 10yr yield spread has widened a touch, out to 63bps, but within comfortable and familiar territory.
• Gilts initially outperformed. Gains of 32 ticks at best to a 91.68 high, currently holding around 10 ticks off that. Upside despite the strong December Retail Sales release and upward revisions to the November Y/Y components. Data that appears to have been overshadowed by a reassessment of the political risk after Thursday's Burnham-induced sell-off; as more commentators pick up on the detail that Burnham's path to becoming an MP is tricky, and largely dependent on the pro-Starmer Labour NEC.
• Overall, though, on UK politics, the theoretical challenge to Starmer is a tricky one for him to play. As preventing Burnham from becoming an MP makes Starmer look weak, while allowing him join Parliament and potentially challenge for Labour leader runs the very real risk of the market-friendly Starmer/Reeves pair losing. As such, while risky, arguably the best move for Starmer would be for him to take on the leadership challenge, if it arises, and win.
• However, the move for Gilts unwound after strong UK PMIs and hawkish commentary from BoE's Greene, points that were enough to take the benchmark to near enough flat on the day.

The current movement in USTs, Bunds, and Gilts reflects a complex interplay of market dynamics. While USTs and Bunds are largely flat, Gilts initially led but faced a reversal due to strong UK PMIs and hawkish commentary from the BoE. Overall, the shifts hint at a cautious market attitude amidst upcoming data releases and evolving political risks, particularly in the UK.