The end of the brought a modest reprieve for Treasuries on Friday after a volatile week that encompassed an FOMC meeting and a two-decade high third-quarter GDP result. Prices migrated higher throughout the morning amid front-running of month-end Lehman index extensions and data came up shy of the most extreme forecasts. Personal consumption expenditures fell 0.3%, though income rose 0.3%.
Chicago PMI surged to 55.0 from 51.2, but compared poorly to whisper numbers of 60/59, while final U. Michigan nudged up to 89.6 from 89.4. There were some pretty healthy flows on eurodollar futures, with "real money" demand for 15,000 of September and December 2004 contracts. A Dutch bank also sold 5,000 108 calls on December bonds in a bearish move, while mortgage services responded to a large 0.24 extension in the MBS index.
The December bond closed up 23/32 at 108-22, while the 2-year note and 30-year bond spread flattened two basis points to +331 basis points. The dollar broke higher with a lag, as the outsized GDP gain and Treasury Secretary Snow's less combative remarks on flexible currency rates sank in from Thursday -- it finished at two-week highs on a trade-weighted basis. Stocks shuffled sideways after a strong rebound with the data this week.