Boing: The market was able to recover to the best levels on the week on the long bond, best since Thurs on the 10s, Mar 2009 on the 5s while knocking around record levels on the 2s. The long end was the power forward here, getting added pump as spreaders unwound from the recent large swing buying the mid-curve against the 30s. The poor to eh data, the week-and-month end activity and sliding stocks all aided the bid while players are so bored and/or lonely they have already begun talking up the jobs report next week on Lollapalooza Fri. They need to be reminded there are a few potential tape-bombs earlier in the week (income and spending, ISMs). The auctions, good, fair and ugly, were out of the way, even though corporate and global issuance is still crowding out the calendar, mostly mid-curve, as they look to get in at the extreme low rates. The rebound in stocks will likely have little spillover unless they can give the run some follow-through next week. The curve was swung back to a flatter stance with the 2-10-yr, with 234.5 area on the 2-10-yr yield spread proving a little sticky, now 235.7. The dollar was under pressure all session with the index backed off to the lowest since late Apr, but getting stalled near the nice, round 81.50 point. The euro has been also spent the latter part of the day stalled near a half point, 1.3050, unable to get much back up after the push to 1.31. The yen's push better also lost some spunk as it flirted with Nov levels with players sniffing for potential intervention. The week ahead has construction spending and ISM (10), while Fed chief Bernanke will speak at a conference (10), and timmy Geithner will speak on financial regulation late (16).

Holding Higher: The market has taken another run at the highs with the 10-yr ticking just through the 2.9% point while the while the 30-yr is angling for the 3.945% area from late last week. The curve continues to flatten out as the short end lags with the current 2-10-yr yield spread running 235.3 with 234.5 likely sticky and 232.8 the next stopping point. Size remains dismal and players are already, already talking about next week's big payrolls number (range rover through the spread) with the +10K to -175K on economists' estimates not likely ugly enough. The unemployment rate is expected to bump up a bit to 9.6% after its drop to 9.5% from 9.7%, still not a pretty number. The disappointing data on the day has added to the pessimists' views. As Briefing.com economist Jeff Rosen noted this morning: The BEA re-estimated all of the data from 2007 though Q1 2010 for its annual benchmark revisions. Q1 2010 GDP was revised up from 2.7% to 3.4%. Since the consensus forecast was based upon the pre-revision data, Q2 GDP was actually substantially higher than estimated... The revisions, though, lent credence to what many people on Main Street had been thinking. The recession was deeper than originally expected and the recovery effort has been a little slower... From its peak in Q4 2007, GDP contracted 4.10% to its trough in Q2 2009. This was roughly 0.44 percentage points less than originally thought. The recovery effort through Q1 2010 only produced an increase in output of 2.57%, about 0.05 percentage points below the previously released data.

Long Bid: The market has been holding a bid with the long end leading as it recovers from recent pressure through spreads while the 10-yr is aiming at a 2.885% yield point. The rally had picked up velocity as they edged back to the highs, but volume remains wafer thin and the week-and-month stuff has largely filtered through so further ground will be tough. The short end is starting to play catch-up, but the 2-yr has been pushed through to yet further record levels, so there may be some limited upside. There has still reportedly been some residual size going through the 3-5-yrs against the 30 in a reversal of yesterday's moves. The curve in the form of the 2-10-yr yield spread has been flattened 234.5, levels last seen last Thurs. The dollar has been held lower but seeing some short coverage to try and get the index back up over 81.60, and may be able to take a run at the 81.80 point on further squaring. The euro has been tugged around the 1.3050 area and will be unlikely to gain much ground while the yen has been able to maintain its push under 86.50, through where players warn of options barriers, and levels last seen in Nov. The pound has also seen a big run-up to trade to levels from Feb. Gold has used the buck's break to pull higher also getting some late week squaring after dropping 3% since Mon with spot 1181.95 (+13.70), crude has also bubbled back on the session, after getting drilled on the lesser data now 77.79 (-0.55).

Playing in the 5 Space: Traders report some decent size running through the 5-yrs early, with a size buyer just ahead of the first run of data then a seller of a third more size on the top as trade ticked around the best levels since Mar 2009. The 120 calls have also seen some size going through with the futures trading near 119-20. Implied volatility has actually ticked up some on the session on the longer end while flat on the shorter instruments. Players point out that, although it's Fri there are still some corporate issuers looking to the 5-and-10-yr space for $500 mln and more size. Trade has a little room to the 1.581% level, but then may get boxed in from 1.595% and 1.659% as the game loses interest. The VIX volatility index was gapped up higher early, but has gotten crumbled since, to 24.08 from 26.35

Stalled: The dollar has been trying to pull back better but it's not an easy road and lightened trade is keeping things contained. The mixed data have left the index leaning back toward 81.50, and it may get caught in a range near 81.60 but with a late session bounce as positions get squared. The euro is battling back 1.30 after data helped suck some of the risk trade out, now reaching for 1.3050, with a similar move against the yen. The yen has been knocking around the 86.50 point with the market testing the possibility of intervention as they run near levels last seen in late 2009. Week-and-month end activity may help the buck out at the end of the day, but there is reportedly so little going through (cursed vacations), that it may already be over.

Holding Higher: The market continues to push to better levels with the long bond long in the lead as it stages a recovery from its spread related sell-off, but the run is losing steam. The big swings in all the 30-related pairs have been highly volatile in the thinned, sidelined, and summer trade, with the action on the 2-3-and-5-yr relationships ranging pretty wide runs. The overall take on the day's data is mixed but the spillover is generally long bond positive while the 2-yr clocks in yet further new record levels.

Snap Back: The long end is getting a solid recovery from the recent, spread unwinding beatdown. The 30-yr has swung over 10.5 basis points on the day as the market retrenches after the extended run-off seen yesterday and helping boost prices all the way down the curve. The auction relief, mixed bag of data and week-and-month end buying will keep things supported.

PMI: The leaky Chicago PMI came in higher than anticipated, with the leak hitting early. The headline improved and prices paid fell (58.1 from 64), production and new orders improved while the employment rebounded from the worst in 5 months. UofM is also leaky, so be prepared

What?: The revision on the last quarter was more interesting than the smaller than expected Q2 headline number. The market took off and the 10-yr ran back to tag 2.919%. There are plenty more numbers on deck so trade should not get too entrenched in its run up. The huge revision to 3.2% from 2.7% for Q1 is being shrugged off for the moment as old news, but the market will continue to digest this report.

Bid into Data: The market has been bid into the data, with the 10-yr reaching back to the best levels on the week, back to levels last seen last Fri with supply out of the way for a week. The long end is seeing some corrective trade after the spread blowout yesterday and leading higher. The calendar is fairly full and the official supply out of the way, so while bid, the market's grip on higher levels will be slippery with a rat-tat-tat of data due. The curve has been seeing some unwinding flatter, but should remain range bound with the 2-10-yr yield spread 239. The dollar is backing off its big rally on the week, with the index jumping to 81.97 from the 81.49 support in a solid run while the yen was able to aggressively break through the 86.50 area on the buck while reversing back to the 113 area per euro.  Data has GDP and the employment cost index (8:30), Chicago PMI (9:45) and Uof M sentiment (9:55).

The dollar index has a small bid this morning after yesterday's close below 82.00. Upon further inspection, the 81.60 held as short-term support, but a move lower may have further downside implications for the dollar. The euro is well off yesterday's high of over 1.3100, and is now trading near 1.3030. The 1.3000 area is acting as near-term support, having formed a foundation over the previous four sessions. The pound is lower, trading 1.5595 as the 1.5500 area has now become support. The yen continues to strength, touching 86.16, its best level in eight months. The yen is approaching 84.80, its best against the dollar in approximately 14 years. The yuan continues to strengthen, albeit at a snail's pace, closing better to 6.7745 against the dollar.

Treasuries have a moderate bid ahead of today's much anticipated Q2 GDP number. The 10-yr yield is at its lowest level in a week, back down to 2.943% from yesterday's close of 2.979%. The yield curve is flatter, running 237.7, with the 237.5 area acting as short-term support. The 230 level continues to be the only thing standing in the way of a possible move to 200. Spot gold is little changed, trading up three dollars to 1171. The day ahead has GDP and the employment cost index (8:30), Chicago PMI (9:45) and Uof M sentiment (9:55).

Table of overnight activity in the financial markets.

Mixed Business: The market was mixed with the longer end dragging with the 30-yr getting hit as spreads were unwound against it while the shorter end outperformed. The 10-yr was able to hold in a bit better, but was under pressure following the poorly attended auction of $29 bln 7-yrs. The market was hurt early on the jobless claims, but was able to regain ground even as the auction sat on the end of the day while stocks backed off before getting blocked by the auction upon which sights had been set a bit high in a lightened, but still hefty and crowded, week of supply. The issue saw a significantly higher bid than pre-auction pricing, with a 2.934% high yield against 2.375%, whereas the previous, larger 7-yr saw 2.575% versus 2.581% and also seeing lowered demand measures in dollars offered and foreign demand while direct bidders were about average. Cheeky Fedster Bullard released a paper that gave the market some added bid in talk of "quantitative easing." The market may get some small relief ahead of the GDP report with supply out of the way, but any moves will be tenuous as trade digests the mash-up of demand for debt. The curve saw an early push to the flattest in a week as positions were unwound and before running back to head out at the week's average with the 2-10-yr yield spread 239.5. The dollar was knocked off and held near 81.50 for much of the day while the euro couldn't get itself up over the 1.31 handle, while the yen was held off the 86.50 point. The day ahead has GDP and the employment cost index (8:30), Chicago PMI (9:45) and Uof M sentiment (9:55).

Under Pressure: The market got clocked on the open and the improved initial jobless claims report (not tempered much by the rise in continuing claims), with the long end dragging hard and the curve steeply steeper. Treasuries are getting some added weight with the auction looming while improved business confidence in the EU helped deplete safety holdings. Volume is very low and trade will be subject to questionable, extreme swings between now and the auction with the activity in stocks dominating. The curve has been wound back to a wider stance with the 2-10-yr yield spread running 241.8 with the mid-month highs near 245 a possibility once the auction rolls through and the longer end loses further ground. The smaller size and odd duration of the 7-yr make it a mixed bag, but the good to really good showings on the past 2 offerings in 2-and-5-yrs have raised the bar for the 7. The dollar got hit with the index at the lowest since Apr and the 81.25 level on deck as the euro makes a play for the 131 level. The focus will hold on the auction and correction following the overblown jobless claims response.