Treasuries are backing up slightly after a strong rally pushed yields to new 2011 lows on Thursday. And mortgages are following the leader, which means loan pricing will likely deteriorate this morning.

The benchmark 10-year is yielding 3.08% in early trading after closing at 3.05% on Thursday. The 2-year yield is up 1.2bps at 0.50% and the 30-year yield bond is up 3.1bps to 4.25%. Current coupons pass-throughs are weaker as well. The FNCL 4.0 is -5/32 at 100-22 and the FNCL 4.5 is -3/32 at 103-26. CC yields spreads are tighter on the open.

"A more hopeful tone seems to have taken hold in global markets this morning as the G8 wraps up their 2-day summit in France and as the U.S. heads into the long weekend," wrote economists at BMO Capital Markets. "It looks like a line in the G8 communiqué is helping set the positive tone."

The G8 said the global recovery is gaining strength. It viewed the debt crisis as of utmost importance and agreed on certain actions to bring it under control and foster employment. Meanwhile, Fitch Ratings cut its outlook on Japanese debt to negative. The move didn't appear to have much impact in Asia, where equities were mixed, as the decision merely put Fitch on par with Moody's and S&P.

Equities are up before the opening bell: S&P 500 futures are 2.50 points higher at 1,329 and Dow futures are 9 points better at 12,418. Light crude oil is +0.58% at $100.81 per barrel, while gold prices are +0.26% at $1526.80

Key Events Today:

8:30 - The Personal Income & Outlays report should show some optimistic trends with income and spending each rising amid benign inflation. Income is expected to rise 0.5% in April, compared with a 0.4% advance in March. Spending is forecast to jump 0.6% following a 0.4% gain. The core PCE index - the Fed's preferred inflation measure - is expected to slow to 0.1% from 0.2% a month before. 

"Consumer incomes are slowly recovering from the depths of the recession, though as is the case with most economic phenomena, the uptrend is much slower than the downdraft," wrote analysts at Janney. "Although firms are once again hiring, wages have yet to feel any meaningful upward pressure, which is limiting the core improvement in incomes to the pace at which joblessness falls."

Janney points out that much of the spending increase is owed to higher energy costs, "as the average price at the pump leapt 7.5% in April."

Moreover, they expect headline inflation to rise "nearly 0.4%," so the growth of consumer spending will be "barely above water in inflation-adjusted terms."

9:55 - Does anyone expect Consumer Sentiment to rise? Not so much. The preliminary index for May rose 2.6 points to 72.4, and economists think that pretty much sums up the month. The consensus forecast is 72.5, and forecasts lie in a narrow range from 71 to 73.

"Recent news has been a mixed bag," noted economists at IHS Global Insight. "April payrolls and average hourly earnings improved, but the unemployment rate increased to 9.0%. Stock market volatility and still-high gasoline prices continue to hurt U.S. consumers despite the recent drop in commodity prices."

10:00 - The Pending Home Sales Index is itself a forecasting tool of existing home sales. As such, few economists make predictions or provide commentary. But it won't be ignored. The index looks at sales contracts that have been signed, but not finalized, thereby providing an early picture of the housing sector. The March index jumped 5.1%, but the pace remained down 11.4% from a year ago. The April index seems unlikely to repeat such a strong gain.

SIFMA has recommended a 2pm close for U.S. bond markets in observance of Memorial Day.