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[MARKET ANALYSIS] USTs hold onto recent gains, Bunds digest ECB speak whilst Gilts take a breather

The recent firmness in USTs and Bunds reflects a combination of risk-off sentiment, disappointing US jobs data, and dovish signals from the BoE, suggesting a continued demand for safe-haven assets.

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[MARKET ANALYSIS] USTs hold onto recent gains, Bunds digest ECB speak whilst Gilts take a breather

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  • USTs are firmer by a handful of ticks, remaining at the elevated levels seen in the prior session. As a reminder, the strength seen on Thursday was attributed to: a) risk-off sentiment, b) poor US jobs data, c) a dovish hold at the BoE. Newsflow is lacking this morning, aside from the recommencement of US-Iran talks in Oman – the key risk is that talks break down, leading to a potential US strike on Iran. Geopols aside, focus will be on the US data slate, which includes the UoM survey. As it stands, USTs currently within a 112-06+ to 112-16+ range.
  • Bunds are also firmer this morning, following peers; currently firmer by around 15 ticks and trading within a 128.31-128.58 range. Earlier, German Exports rose more than expected, with Imports also topping expectations – promising data from the region, though more focus was on the Industrial Production. The metric fell sharply in December, which highlights the uncertain nature of Germany’s recovery. Following this data, Bunds rose from 128.37 to a high of 128.46, before scaling back to just under the 128.40 mark, where the benchmark currently resides. Several ECB speakers have appeared throughout the day, Kazaks highlighted risks of the stronger EUR, whilst Rehn suggested that there's a real risk of lower than expected inflation.
  • Gilt action settled down this morning, following its choppy trade seen in the prior session; to recap Thursday's action, initial underperformance was seen following reports that Labour MPs were putting pressure on PM Starmer to resign. Thereafter, a dovish hold at the BoE led to upside in UK paper. As for today, Gilts trade flat/slightly lower within a 90.30-90.59 range. No fresh updates on the political side of things, with recent reporting essentially suggesting that MPs are unsatisfied by Starmer’s recent presser, where he claimed that Mandelson “lied” about his relationship with Epstein. The PM may now face a leadership challenge from the likes of Wes Streeting or former Deputy PM Rayner; though the FT reminds readers about Streeting’s past relationship with Mandelson, whilst Rayner is still working through her tax-related affairs.
Context

Meanwhile, Bund action is influenced by mixed economic indicators, particularly uncertain industrial production, and ECB rhetoric indicating inflation risks. Gilt stability, following a volatile session, highlights political pressures impacting sentiment, although there's an absence of fresh updates that could sway the market further.

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