Trading was choppy through the morning but anxiety was palpable, and news that the White House had gone to "orange" alert, only one-off from the highest "red" status, quickly pulled Treasuries into positive territory.
A couple of other incidents also played with traders" psyches, including a scare on the Brooklyn Bridge and the forced landing of a private plane in North Carolina. Though the bond was up nearly a point intraday, the belly lead the way. Size buying of 10-year calls was noted. The short end struggled to capture the safe-haven flow given beliefs the Fed is on hold near term.
Meanwhile, bonds were held back by fears of rising oil/commodity prices in the event of an attack on Iraq. Within this environment the Treasury successfully auctioned $18 billion in four-week bills and $9 billion in five-day cash management bills.
News that weekly chain store sales improved slightly and the Richmond Fed's manufacturing index declined did not impact.