The election lead going to leftist Lula in Brazil made some a little jittery about bank exposures to the country, and residual acrimony on the banking sector in Europe and Japan kept credit spreads jumpy throughout the session. In addition, anticipation of Bush's prime time speech on Iraq this evening played a role in keeping underlying Treasuries mostly bid, particularly the front-end, which lagged on Friday. Bush appeared likely to continue to build his case against Iraq, rather than set an imminent timeline, according to U.S. press.
The December bond gained 10/32 to 113-31, after stalling out at 114-14. The curve accordingly steepened, with the two-year note and 30-year bond spread closing a couple basis points wider at +294 basis points. U.S. shares closed nearly 2% lower. Consumer credit was the sole data release and rose 2.9% or $4.2 billion, lower than expected. Kansas City Fed's Hoenig expected the economy to weather event risks and still grow.