JGBs gain as U.S. Treasuries firm; investors wary flattening yield curve

Japanese bonds gained Thursday following firmness in the U.S. Treasuries, bolstered by rising risk aversion as equities slumped and also taking their cue from a flattening U.S. Treasury yield curve.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 1 basis point to 0.045 percent, the yield on long-term 40-year declined nearly 1 basis point to 0.987 percent and the yield on short-term 2-year declined 1 basis point to -0.184 percent by 04:05 GMT.

The U.S. Treasuries found upward pressure across much of the curve overnight, despite continued selling seen in the short-end of the curve, following the release of October CPI data. That came in alongside market expectations, posting a +0.1 percent m/m increase on the headline and a +0.2 percent m/m increase on the core. Additionally, markets took in stride dampened reading for retail sales, Empire manufacturing, and business inventories.

The yield gap between shorter-dated and longer-dated Treasuries shrank on Monday, with the spread between five-year and 30-year yields at 80.70 basis points. The spread between U.S. two-year note yields and U.S. 10-year notes also contracted to 71.70 basis points.

On Wednesday, Japan notched up its seventh straight quarter of economic growth, official data showed on Wednesday, although the rate of expansion in the world's third-biggest economy is slowing. Japanese gross domestic product (GDP) grew by 0.3 percent in the third quarter of the year, marking the longest string of gains for more than 16 years.

However, the figure represented a slowdown from the second quarter, when the economy grew by 0.6 percent, as a recovery in private consumption appeared to lose steam. The economy grew by an annualized 1.4 percent, driven mainly by robust exports, the Cabinet Office in Tokyo announced.

Meanwhile, Japan’s Nikkei 225 slumped 1.33 percent to 22,082.00 by 04:10, while at 04:00GMT, the FxWirePro's Hourly Yen Strength Index remained neutral at 0.65 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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