Headline nonfarm payrolls fell 44,000 in June from a downwardly revised -72,000 in May, while the unemployment rate perversely sank to 6.2% from 6.4%. Personal income/spending rose 0.3%, while final U. Michigan consumer sentiment edged up to 90.9. ISM manufacturing survey gained to 51.8 from 49.8, but this was well below rumors of a rebound to 57.8. Auto sales also trickled through, on the firmer side.
Rumors of distressed hedge fund selling in the swap and agency markets as well as the euro$ pits kept trade spread product lively -- the biggest 2-day widening since the Savings & Loan incident. But given talk of an asset fire sale, this could have helped put a floor under Treasuries ahead of the quarterly refunding. Rumors included talk of a downgrade in the financial sector relating to derivatives or mortgages. The September bond closed up 11/32 at 106, well above 104-08 lows. The 2-year note and 30-year bond spread narrowed sharply (-13 basis points) to + 351 basis points as post-refunding bets weighed on the front-end.