JGBs jump on fears of global economic downturn; BoJ likely to ease further

The Japanese government bonds jumped Thursday on increased expectations the Bank of Japan (BoJ) will further ease monetary policy, on rising fears of a global economic downturn, with the U.S. 2s10s Treasury yield curve barely 2 basis points away from an inversion.

The yield on the benchmark 10-year JGB note, which moves inversely to its price, plunged 23-1/2 basis points to -0.234 percent, the yield on the long-term 30-year suffered 4-1/2 basis points to 0.155 percent and the yield on short-term 2-year slumped nearly 28 basis points to -0.279 percent by 05:20GMT.

Market sentiment is increasingly brittle with investors seemingly latching on 2nd tier data and reacting disproportionately (although the US 2/10 inversion may have triggered a technical/algo-related response), OCBC Treasury Research reported.

Going ahead, with global bond markets essentially throwing in the towel (i.e., inferring that central banks are behind the curve), fears of a global recession (note that base metals, especially copper, continue to be in the doldrums) may continue to dictate price action – expect implicit support for haven currencies to persist, while cyclicals (and EM/Asia) may to continue to fade against the USD, the report added.

Meanwhile, the Nikkei 225 index slumped -1.36 percent to 20,374.00 by 05:25GMT.