It was a rather fruitless session for Treasuries Tuesday, though stocks did not fare much better in the end. The curve flattened amid an ebb in the volume of hostile headlines on Iraq, though one confusing incident with U2 surveillance fly-overs helped establish the day's range.
The market started in profit-taking mode as stocks appeared ready to overcome their own mass at the beginning of the session, but equities could not stay on their feet. Data was limited to mostly damp weekly retail sales reports and an 0.2% drop in wholesale inventories thanks to the weak auto sector. The regional Richmond Fed indices dropped sharply, with manufacturing shipments (0 from 18) and service revenues (-34 from 16) weakened by weather, war and fuel prices in February.
A Pentagon press conference later revealed confusion on the U.N. authorization for two U2 planes to fly over Iraq, which were recalled after a protest by Baghdad -- no trigger for war after all. The June bond shot higher on the first U2 reports, but topped out at 115-22 and retreated nearly to opening levels, closing -3/32 at 115-08. The two-year note and 30-year bond spread tightened five basis points to +327 basis points, as the front-end underperformed. Volume on benchmark 10-year notes likewise continued to ease on the U.N. impasse.