FOREX-Yen holds gains as Treasury yield inversion fans recession fears

The yen held on to gains against major currencies in early Asian trading on Thursday as growing signs of a global economic slump drove investors into safe-haven assets.

The Swiss franc and gold also edged higher as investors fled from stocks and sought safe-haven assets after the U.S. Treasury yield curve inverted for the first time in 12 years and U.S. stocks sold off sharply. The inversion, where 2-year yields trade higher than 10-year yields, is considered by some analysts to be a sign that the U.S. economy is likely to enter a recession.

Sentiment was already fragile after disappointing economic data from China and Germany revealed the extent of the damage the U.S.-Sino trade war is causing to two of the world's most important exporters. Safe-haven currencies, gold, bonds and other low-risk assets could continue to get a boost due to growing worries about the poor health of the global economy.

"When volatility rises, dollar/yen becomes strongly correlated with Treasury yields, so the currency pair has more room to fall," said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo. "I expect other safe havens to rise. The mood is downbeat, because of the trade war and bad economic data."

The dollar was a tad lower at 105.85 yen in Asian trading Thursday. On Wednesday, the yen rallied 0.8% versus the greenback, its biggest daily gain in two weeks. The dollar index, which measures its value against a basket of six major currencies, stood at 97.987 after a 0.2% gain on Wednesday.

The U.S. Treasury yield curve temporarily inverted on Wednesday for the first time since June 2007. U.S. 30-year yields also plunged, dropping to a record low of 2.015%. Against the dollar, the Swiss franc last traded at 0.9766, holding on to a 0.3% gain posted on Wednesday.

Spot gold, which is usually bought in times of economic uncertainty, traded near the highest in six years.

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