Trading on US and European bond markets was again confined to tight ranges. Investor sentiment in Europe turned more cautious despite yesterday's rally on WS. A sharp decline of USD/JPY and a mediocre performance of European equities provided a cautious bid for core bonds, but the intraday gains remained modest. At the start of the US trading, the US NFIB small business confidence printed stronger than expected. Fed's Mester said that recent market turmoil doesn't change her assessment on the economy. At the time of writing, US/core yields are mostly slightly lower. The picture on the equity markets remains indecisive. US yields decline up to 1.5 bp with the 2-year underperforming (+2 bp, Mester comments?). German yields decline up to 1.5 bp, with the 10-year outperforming. 10-y yield spreads versus Germany widened across the board. Italy and Spain added 4bp. Portugal widened 6bp. Greece again underperformed (+11bp).
Dollar weakness prevailed today. We didn't see any specific economic news to explain the move. The sharp decline of USD/JPY in Asia this morning and early in Europe also weighed on other USD cross rates. USD/JPY dropped from the 108.75 area to fill bids below 107.50 just before noon in Europe. The move created uncertainty on European equity markets. The risk-off this time didn't help the dollar against the likes of the euro. The USD/JPY decline also propelled EUR/USD back to the 1.2350 area. The EUR/USD rally slowed temporary early in US dealings after a strong NFIB confidence and 'hawkish' comments from Fed's Mester (no impact yet from recent market turmoil). Still, the dollar is holding within reach of the intraday lows. EUR/USD trades at 1.2350. USD/JPY trades near 107.70.