Treasuries found a floor early in the session, amid light curve flattening trades and calendar roll activity on options. A steady flood of corporate issuance continued to wash through, but was readily absorbed as dealers ran for cover. After the U.S. and Britain temporarily shut their Saudi embassies, the Department of Homeland Security raised the nation's terror alert to orange (high) based on increased intelligence chatter. Canadian officials also announced the first case of "mad cow" disease in Alberta and the U.S. banned beef imports.
The December bond closed up 1-13/32 at 120-15, while the 2-year note and 30-year bond spread narrowed 4 basis points +309 basis points. With the 2-year yield now matching the 1.25% Fed funds rate, the futures now fully price a quarter point cut in June and risk of an intermeeting move. Gold hit 3-month highs of $370/oz.