Longer-dated maturities benefited from softer than expected PPI data as they reinforced the prevailing view that inflation is well contained. Bonds initially jumped following the weak June headline retail sales data, but enthusiasm faded quickly on the upward revision to May.
Shorter maturities were pressured early in the session as traders unwound the safety bid from Thursday's emerging market fears. The markets in Argentina showed signs of stability after some signs of support for Cavallo's proposed spending moderation were reported. Improvement in consumer sentiment data added to the pressure on shorter-dated maturities.
The trading action resulted in a yield curve flattening trade as the 2s-30s spread tightened to 154 basis points, from over 160 during Thursday's trading. Action was choppy and lackluster as traders were hesitant to take large positions ahead of Greenspan's testimony Wednesday before the House Financial Services Committee ("Humphrey-Hawkins").