Treasuries surged dramatically higher Thursday, without any apparent reservations about Greenspan's speech tonight before the Economics Club of New York. The elevated war premium was the main evolving story, as first U.N. Chief Inspector Blix, and then Secretary of State Powell in no uncertain terms, expressed skepticism over Iraq's willingness to comply with resolution 1441.
The curve briefly shed some of its recent steepness following rebounds in leading indicators, the Chicago Fed National Activity Index and the Philly Fed, but finished as steep as it began. Seasonally distorted initial claims fell back only a disappointing 11,000 to 433,000. Treasuries overcame all these obstacles, rallying furiously ahead of the close on Powell's stern rhetoric that Iraq had largely "recycled" previous inspection documents and comments from the U.S. Ambassador to the U.N. that Iraq was in "material breach" of its U.N. obligations.
Dealers were compelled to trade Treasuries from the long side, with leveraged demand for five-year notes and 10-year notes noted supporting the belly perhaps ahead of expected convexity hedging. The March bond closed just over a point higher at 110-29, while the two-year note and 30-year bond spread finished unchanged at +319 basis points.