Though personal income was unchanged in April and consumption fell 0.1%, the latter was revised up sharply in March and the Fed's favorite inflation measure, the PCE deflater, fell 0.2% --favoring bonds. University of Michigan sentiment was revised down to 92.1, though Chicago PMI, a closely watched measure of manufacturing activity in the Chicago area, jumped to 52.2 from 47.6 in May. Selling resumed after PMI, but 61.8% support kicked in on 10-year notes and bond futures, along with a little month-end index-related demand. Some were also mulling Fed Governor Bernanke's speech on Japan Monetary Policy Saturday for any implications on the deflation trade.
The September bond closed down 3/32 at 119-07, a point above its lows, while the 2-year note and 30-year bond spread narrowed 3 basis points to +304 basis points. Late in the session the U.S. lowered its terror alert level to yellow, or elevated, keeping the cash market on the defensive. Leveraged sellers at the front-end (2-year notes through 5-year notes, and cash) were rumored to be getting a jump on selling in that area of the curve prior to the data.