JGB yields fall tracking US peers, on weak economic data

TOKYO, May 16 (Reuters) - Japanese government bond yields fell on Friday, tracking sharp declines of U.S. Treasury yields overnight, and as weaker-than-expected economic data underpinned demand for bonds.

The 10-year JGB yield JP10YTN=JBTC fell 2 basis points to 1.455%. The two-year JGB yield JP2YTN=JBTC fell 1 bp to 0.705% and the five-year yield JP5YTN=JBTC slipped 2 bps to 0.98%.

"JGB yield tracked U.S. Treasury yields' decline, while the weak economic data prompted investors to buy safe-haven bonds," said Masahiro Yamaguchi, head of the investment research department at SMBC Trust Bank.

Japan's economy shrank for the first time in a year and at a faster pace than expected, data for the March quarter showed on Friday, underscoring the fragile nature of its recovery now under threat from U.S. President Donald Trump's trade policies.

Overnight, U.S. Treasury yields fell sharply after data showed deceleration in the world's largest economy in April. US/

The 20-year JGB yield JP20YTN=JBTC fell 2 bps to 2.375%.

Yields on longer maturities rose amid low liquidity and ongoing concerns about weak demand.

The 30-year JGB yield JP30YTN=JBTC edged up 0.5 bp to 2.96%, and the 40-year JGB yield JP40YTN=JBTC climbed 2 bps to 3.455%.

"The market is hoping the government would step in to take some measures to improve the demand," said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.

"That includes the ministry of finance to reduce issuance of the 30-year bonds," he said.

The gap between the 10-year JGB yield and the 30-year bonds JP10JP30=RR was at 150 bps, near a record high level, signalling weak demand for the 30-year bonds.