Treasuries added to the gains posted in the previous session on Wednesday, as investors bulked up their positions in risk-averse investments amid some uncertainty on Wall Street. The move came as traders digested better than expected news from the housing sector but continued to consider poor corporate earnings figures.
Data from the housing sector showed a notable increase in mortgage applications, while industry heavyweights Centex (CTX) and Pulte (PHM) agreed to merge to form the largest homebuilding company in the U.S.
Traders also took note of the minutes of the latest Federal Open Market Committee meeting, which showed that nearly all of the meeting participants felt that economic conditions had deteriorated relative to their expectations at the time of the January meeting.
Despite seeing some volatility throughout the day, the benchmark ten-year note finished strong for the second straight session. The yield on the note closed at 2.847 percent, a fall of 6.2 basis points on day.
Amid the day's news, traders also looked to a record setting bond auction that saw relatively strong demand, indicating the dampening of risk appetite on the day.
Earlier in the afternoon, the government completed its auction for a record $35.0 billion worth of three-year notes, drawing a high yield of 1.385 percent. The sale attracted moderately strong demand, with the bid-to cover ratio coming in at a level of 2.42. The security is scheduled to mature April 15th, 2012.
The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.
The previous auction of three-year notes took place early last month, when the government sold $34.0 billion worth of the security. The sale drew a high yield of 1.489 percent and posted moderate demand, with the bid-to-cover ratio coming in at 2.26.
Looking ahead to Thursday, investors will pay close attention to an auction of ten-year notes, as the ten-year note is known as a benchmark security in the bond market.
In addition, investors will compare the results of the auction to the outcome of the ten-year TIPS sale held Tuesday. The spread between the securities is likely to give an indication of near-term inflation.
At 11:30 a.m. Thursday, the government will sell $18.0 billion worth of ten-year notes with a maturity date set for February 15th, 2019.
The previous auction of ten-year notes took place early last month, when the Treasury sold $18.0 billion worth of the securities. The auction drew a high yield of 3.681 percent while attracting modest demand, with the bid-to-cover ratio coming in at a level of 2.14.
On the economic front, traders digested data from the Mortgage Bankers Association showing some signs of life from the housing sector. The report showed that the index of mortgage applications rose 4.7 percent in the week ended April 3rd.
The purchases index rose 11.1 percent to a level of 297.7, the highest level since mid January, while the refinancing index advanced by 3.2 percent, bringing the figure to 6,813.5.
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