Treasury prices pared early losses this morning after the US Navy warned of possible al-Qaeda attacks on shipping in the Gulf.
The navy warned of unconfirmed reports suggested Al-Qaeda has planned attacks against oil tankers traveling the Arabian Gulf and Horn of Africa areas.
Markets were already tense given the impending September 11th attacks anniversary, and the warning prompted some safe-haven flows.
Bond bulls were also relieved when Wall Street got off to a hesitant start. Sharp gains in European equities overnight and strength in US stock futures had seemed to presage a big rise at the opening but in the event the major indexes were only barely firmer.
Two-year notes regained much of their early fall to be down 1/32 to 99-30/32, taking yields to 2.15 per cent from a 2.20 per cent high and 2.13 per cent at Monday's close.