Treasuries Close Lower

Security worries in the U.S. unsettled fixed-income investors

A less than resounding victory for U.S. assets Tuesday followed successful ongoing air operations in Afghanistan. Yet, it was security on the home front that kept investors uneasy, as the bond tumbled nearly a point and stocks closed in the red. The middle maturities were weighed early on by the prospect of another surprise reopening, this time of 5-year notes by the Treasury, but by the end of the session benchmark 10-year notes were the clear underperformer. December bonds closed 27/32 lower at 105-30, while the curve remained well bid at +266 basis points on the 2s/30s spread.

Uncertainty over the scope and duration of the war on terrorism, not to mention measurement of success and a price tag, all gnawed at the markets. Partisan fissures also emerged over the tax reduction/spending split in the stimulus package. On top of that a double dose of Anthrax contamination in a Boca Raton building appeared more than just coincidence, prompting FBI and CDC investigation. The dollar surged on vague reports of covert Russian troops outside Kabul. CRB commodity index tumbled 1.7 points amid lower global demand.

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