The government's upgrade to an "orange" or high alert stage from the more cautionary "yellow" was all that was needed to put a nervous Treasury market on the bid Tuesday. Treasuries had been underwater from the get-go an equity rebound and an ongoing reduction in Fed easing expectations.
Trading was choppy through the morning but anxiety was palpable, and news that the White House had gone to "orange" alert, only one-off from the highest "red" status, quickly pulled Treasuries into positive territory.
A couple of other incidents also played with traders" psyches, including a scare on the Brooklyn Bridge and the forced landing of a private plane in North Carolina. Though the bond was up nearly a point intraday, the belly lead the way. Size buying of 10-year calls was noted. The short end struggled to capture the safe-haven flow given beliefs the Fed is on hold near term.
Meanwhile, bonds were held back by fears of rising oil/commodity prices in the event of an attack on Iraq. Within this environment the Treasury successfully auctioned $18 billion in four-week bills and $9 billion in five-day cash management bills.
News that weekly chain store sales improved slightly and the Richmond Fed's manufacturing index declined did not impact.