Treasuries Finish Higher

Treasuries recovered at the close despite reduced risk aversion, as the dollar and stocks sank

Treasuries got off to a lame start Monday after a weekend of press stories that superficially reduced risk aversion. Among them, the capture of a major al Qaeda plotter, the Turkish bases impasse and the destruction of some Iraqi missiles. This oasis of calm, however, soon dissolved. The dollar and stocks rolled over into the red by the end of the session, while Treasuries scampered back to session highs.

Weak personal spending and a higher savings ratio didn't hurt, particularly after an ISM plunge to 50.5 from 53.9, while a 1.7% jump in construction spending and weak auto sales were ignored. There really wasn't one particularly compelling trigger for the shift in sentiment, though fragile sentiment was highlighted by the weak pretext of a U.S. spy/fighter plane incident over North Korea. This turned out to be a red herring (a stale story from earlier in the weekend), though U.S. officials confirmed it.

Otherwise, dealers said there was no major block or curve trades over the day, though vol on benchmark 10-year notes was sold early before recovering part way. The June bond closed up 2/32 at 114-17, well up from lows of 114-05. The two-year note and 30-year bond spread drifted around an unchanged +315 basis points before a late three basis-point sprint to +318 basis points.

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