Comments from U.S. officials after the Azores summit Sunday, including Secretary of State Powell, and news that President Bush would address the nation Monday night and give Saddam a 72 hour ultimatum, added to expectations that an attack was only days away. Traders re-priced for a swift, successful strike against Iraq and a recovery in the economy.
The 10-year note dropped over a point in the day, resulting in a 14 basis point climb in the yield. Meanwhile, losses on the 2-year note were relatively contained, despite the unwinding of the flight-to-quality trade, as many expect the Fed will shift to an "easing bias" at Tuesday's FOMC meeting.
Meanwhile, a short covering rally boosted stocks significantly, with the Nasdaq closing up over 4%. The dollar also firmed as bears covered shorts. From MMS International