War tension continued to mount and Treasuries Wednesday continued to forge higher, despite 2-year supply and fresh post-Gulf War highs on the price of oil. Two stories today helped provoke a flight bid. First, CNN reported that a car was stopped by Connecticut police and searched for explosives. Second, U.N. Inspector Blix said that Iraq fell short of full cooperation and has yet to make a fundamental decision to disarm, despite some progress.
The White House also announced that Bush would make a prime time speech tonight on post-war Iraq and democratization of the Middle East, keeping anxiety simmering. Treasury's $27 billion 2-year sale was solid, testament to the degree of safe-haven demand. The results bolstered Treasuries, though the curve flattened thanks to the WI roll to the new issue.
Mexico priced a $1 billion 12-year issue and agency Fannie Mae launched $4.0 billion new 3-year global benchmark note. Roll activity dominated in the morning, especially in 5-year notes, as June takes over as the lead month tomorrow. The March bond closed 22/32 higher at 114-23, the 2-year note and 30-year bond spread narrowed 7 basis points to +317 basis points.
Stocks closed up to 1.5% in the red, while the dollar remained skittish. Fed's Greenspan and Treasury's Fisher mulled the steep drop in confidence Tuesday.