After an unsteady start on another round of Bin Laden capture rumors Wednesday, Treasuries recovered most of their lost ground by session end and the curve flattened. The rumor emerged and was dismissed by the CIA almost before trading was underway in earnest in New York. Israeli television also reported a Mar. 18 launch date for allied operations against Iraq, though White House spokesman Fleischer said the decision had not been yet made. Wires also carried reports that a building near the Treasury Department had been evacuated due to discovery of a suspicious package, later found to be benign.
The U.S. trade gap narrowed 8.4% to $41.1 billion in January, amid rising oil prices and the weakening dollar, but this was mostly of momentary relief to the buck. The June bond closed up 11/32 at 115-20, the only contract to finish in positive territory. The unwinding of curve steepeners, while the wrangling on Iraq continues and players set up for the aftermath, dominated the session. The two-year note and 30-year bond spread accordingly collapsed 10 basis points to +317 basis points, perhaps in anticipation of the war premium being liquidated soon. U.S. stocks managed to close in the green, despite the plunge across European exchanges.