Treasuries gave ground as quickly as Allied forces gobbled it up en route to Baghdad after a week bombarding of front-line Iraq Republican Guard divisions. The curve flattened as war optimism spread, while stocks and the dollar padded early gains. The safety premium was reduced not only on Treasuries, but fear proxies gold and oil tumbled sharply as well.
Treasuries fell as the allies advanced to the outskirts of Baghdad with limited resistance, and as Private Jessica Lynch, an American prisoner of war, was rescued. A benign end to the San Jose SARS incident, and speculation over Saddam's missed TV appearance Tuesday aslo helped to pull down Treasury prices.
Though the probability of a regime change promoted the asset allocation shift, some remaining caution limited bond selling as a more dangerous phase of the war began and the risk of use of chemical weapons increased. The capture of a key dam in central Iraq that could have been used to flood the areas around Baghdad, however, was a positive offset.
Factory orders fell 1.5% in February, but armchair Generals ignored the damp data. The June bond fell 1-6/32 to 111-18, while the 2-year note and 30-year bond spread recovered from a 4 basis point dip to +331 basis point back up to +335 basis point. The belly of the curve underperformed on modest convexity-related selling.