It was a "inside day" for longer dated Treasuries, which gained back some lost territory after a particularly painful week of losses. This was no small feat after another batch of solid data, but selling appeared to be wrung out after Thursday's carnage on shorter-dated instruments. Some long liquidation continued in Fed funds and eurodollar futures early in the session, but stock weakness and lack of downside follow-through allowed prices to bubble back up.
Housing starts gained 3.4% to 1.89 mln units and preliminary U. Michigan consumer sentiment rose to 89.4 from 87.7, but price gains were evident across the curve. Fedspeak was limited to a debate on the merits of inflation targeting, where strong opposing view were expressed by Governors Bernanke and Kohn, with the latter aligning himself with Federal Reserve Chairman Greenspan who has argued against be ensnared by a rigid target.
Terror-oriented rumors also swirled, running the gamut from London bombings to U.S. airline security searches, abetting a light safety bid ahead of the weekend. The December bond closed up 27/32 at 106-26, while the 2-year note and 30-year bond spread steadied at +338 basis points after its 20 basis points freefall this week. The dollar sank after a U.S. motorcade was rebuffed in Lebanon.