The corrective slide gathered pace as stocks rebounded and some U.S. allies continued to dig in their heels against war with Iraq. Saddam threw another curve ball by volunteering to allow U2 spy planes to help inspectors monitors Iraq weapons. That prompted a cavalcade of selling into the lunch hour and pushed yields higher. The Iraqi concession appeared to have strings attached, however, and the U.S. branded as it as more subterfuge and prices recovered somewhat.
The Treasury conducted its first coupon pass since September, supporting the short-end. A dealer sold 9,000 109 puts on June 5-year notes, which proved mildly supportive. The March bond closed 25/32 lower at 112-07, nearer the bottom of a rough 113-112 range. The curve continued to steepen modestly, with the two-year note and 30-year bond spread a basis point wider at +319 basis points. The belly underperformed for most of the session, eclipsed only by the bond.