Treasuries Soar on a Flight to Safety

Treasuries got a boost on news that the U.S. government arrested an alleged terrorist last month. More cautious comments from the Fed also lifted longer-dated issues

It was an "inside day" for Treasuries Monday, which carved back about half of their post-payrolls losses from a more volatile Friday. News that India and Pakistan were constructively working on their differences and that India re-opened its airspace to Pakistan set up a notable curve flattener. This was likely a bi-product of all the speculative steepeners put on thanks to the Kashmir crisis.

Energy prices and gold also had a weaker session, which suggested that the safety premium was being reduced as well. With no data to speak of and a couple of comments from Fed speakers, dealers were prepared for a quiet session.

But, the Justice Department belatedly disclosed that a terrorist planning a dirty radiological bomb plot was arrested back on May 8, though that date never appeared in the more inflammatory headlines. Stocks initially rolled over and played dead, but recovered their equilibrium by session end.

The September bond popped to 101-12 on the headlines, but closed up 13/32 at 101-06 after the details were disseminated. The front-end fared relatively poorly as steepeners were unwound, with the two-year note and 30-year bond spread closing three basis points tighter at +249 basis points.

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