Treasuries Finish Mixed
U.S. asset markets were mostly pinned down Thursday by the start of air and ground attacks on Iraq by allied forces. A preemptive strike on Iraqi leaders was later countered by a suspicious TV appearance by Saddam Hussein, as questions remained about its authenticity.
Treasuries and other safe assets continued to shed their premiums, with oil, gold, swaps, agencies and other assets all ceding ground. Stocks and the dollar, however, gained little ground after recovering from lows on the initial attacks and reappearance of Iraqi leadership. Subsequent ground campaigns launched from Kuwait and air strikes around Baghdad kept the markets very cautious.
A extended round of data was mostly ignored in favor of military events, otherwise proving mostly friendly to bonds. Initial claims fell 4,000 to 421,000, leading indicators sank 0.4% and the Philly Fed index tumbled to -8.0 from +2.3. The ECB also said it would ensure liquidity during the Iraq crisis, which initially boosted bunds and bonds. But the June bond closed down 22/32 at 110-22, while the 2-year note and 30-year bond spread steepened another 5 basis points to +327 basis points. The war barometer, crude oil, shot above $30/bbl on reports of torched Iraqi oil wells, but settled below $28.50 on supply hopes.
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