Treasury bonds were hit hard in the morning, a reaction to the climb in the

Chicago Purchasing Managers Index

, a gauge of Midwestern manufacturing activity. Dollar/yen was getting drilled in the morning, which contributed to weakness in bonds.

The Chicago PMI, a sound predicator of the similar national index, to be released tomorrow, rose to 57 in March, its highest reading since April 1998. This outpaces February's 52.9 figure, and the forecast for 52.6.

Most other series contained in the index rose sharply, but most important is prices paid, which measures the price of raw materials paid by manufacturers. It rose to 52.5 from 41.6, the greatest increase in this category since October 1980.

"That's a cost they're going to want to pass through, so it's seen as an inflation indicator," said Bill Hornbarger, fixed-income strategist at

A.G. Edwards

.

Recently the 30-year Treasury bond was down 1 to 94 6/32, giving up all of yesterday's gains and then some. The yield rose to 5.66%.

"One of the themes the last few years has been that the economy is strong, but manufacturing is maybe not participating," said Hornbarger. "If manufacturing starts to perk up, that's going to bring more inflationary pressure."

Dollar/yen was recently down more than 2 to 118.27 after a thinly traded overnight session.

GovPX

reported volume down 2.5% when compared with the average first quarter Thursday, but up 18% when compared to other Thursdays this month.

The only other significant release, the

Commerce Department's factory orders

for February, fell 2.5%, the first decline since October. Since this figure is six to seven weeks old, it's been ignored. And fourth-quarter GDP was revised for the final time today to 6% from 6.1%. As is practice, this revision, too, was ignored.