[MARKET ANALYSIS] USTs mildly firmer, Gilts largely unreactive to Labour losing its Gorton and Denton seat to the Greens

• USTs are firmer by a handful of ticks this morning, and trades within a 113-16 to 113-19 range. Really not much driving things for US paper this morning, and remains towards the prior day’s peaks. The upside in USTs on Thursday was facilitated by subdued risk appetite and a decent 7yr auction. Focus remains on the geopolitical situation, following US-Iran talks. Meetings have concluded, and whilst there have reportedly been some positive developments, uncertainty remains. Reports suggest that US President Trump is expected to convene senior advisers on Friday for detailed discussions on Iran and to decide on a course of action toward Tehran. Internal deliberations are said to be focused not on whether a strike would occur but on its scope and potential targets. On the data front, US PPI data for January is expected to rise +0.3% M/M (prev. 0.5%), while the ex-energy/food/trade measure is seen rising +0.1% M/M (prev. +0.4%). Elsewhere, construction spending for December, and the Chicago PMI for February are due.
• Bunds are incrementally firmer/flat, and currently trades within a 129.76 to 129.99 range. Initially held towards recent highs, but has since slipped towards the unchanged mark following the hotter-than-expected French inflation metrics. In brief, headline Y/Y printed at 1.00% (exp. 0.8%), with the M/M figure also topping expectations. Bunds slipped around 4 ticks and have continued to trade sideways since. Next up, German Unemployment Rate, German State CPIs and then the mainland figure this afternoon.
• Gilts are firmer by around 10 ticks, to currently trade near the upper end of a 93.00-93.30 range.  Overnight, UK journalists focused on the Gorton and Denton by-elections in which the Green party won, with Reform second and Labour third. With Labour losing a seat they held for almost 100 years, UK PM Starmer's leadership could be at risk – which in theory would place pressure on UK-assets. This has not been reflected in price action this morning, though analysts at GS opined that the risk had already been priced in by markets.

The Labour Party's loss in a traditionally safe seat to the Greens raises questions about PM Starmer's leadership, which could have implications for UK assets if it signals broader electoral vulnerabilities. However, today's market reaction in Gilts has been muted, suggesting that this risk may already be priced in. As geopolitical dynamics remain in focus with ongoing US-Iran discussions, market sentiment appears cautious but stable for now.