With a tight grip on recent gains, Treasuries Tuesday held their own and the curve continued to flatten.
Risk aversion after the bombing in Riyadh, Saudi Arabia, kept stocks off balance, though price gains on Treasuries ran into a bottleneck as multi-decade yield lows on 10-year notes impeded traffic.
Late in the session there was a brief flurry of bond buying amid news reports of a bomb at the U.S. Senate building, which was cleared out. Some reports tallied the Riyadh death toll at 91 from early accounts of 29.
There was little initial reaction to the second largest trade deficit in history, which hit $43.5 bln in March. Indeed Treasuries climbed over the session and the dollar cut some of its recent losses.
The June bond closed up 8/32 at 117-04, while the 2s-30s spread narrowed 6 basis points to +316 bp. Treasury Secretary Snow leaned against forex intervention after talking up export benefits of a weaker dollar, favoring "sound" forex policy. Fed officials Parry and Olsen downplayed deflation risks and unconventional policy tools.