The yield gap between U.S. Treasury 5-year notes and 30-year bonds slid to the narrowest level in nearly six years as signs of slowing inflation boosted relative allure of longer-term government securities. The difference, also known as the yield curve, fell to 139 basis points as the benchmark 10-year break-even rate, a measure of inflation expectations, touched a 3-year low of 1.78%. Today’s report showed U.S. unit labor costs fell 1% in Q3, suggesting little wage pressure.
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Euro-area government bonds advanced as investors speculated the European Central Bank (ECB) will expand its asset purchase program to include government securities. Spain’s 10-year yield slid as much as 5 basis points (bps) to reach 1.961%, yielding below 2% for the first time ever. 10-year bond yields in Italy, Ireland, France, and Austria also hit historic lows, extending last week’s decline after ECB President Mario Draghi strongly signaled further stimulus.