Treasuries showed substantial strength on Monday as investors rebuilt their positions in risk-averse investments ahead of the week's influx of earnings reports and economic data.
The move into treasuries came ahead of what is expected to be a poor earnings season for some of the largest financial institutions in the U.S., as traders will digest results from Citigroup (C), JPMorgan Chase (JPM) and Goldman Sachs (GS) throughout the week.
Earnings from the banking sector will be closely watched as traders look for any signs of stability in the volatile financial sector.
In addition, investors will consider an influx of key economic reports set to begin Tuesday morning with the release of the Producer Price Index from the U.S. Labor Department and retail sales figures from the Commerce Department.
The benchmark ten-year note moved steadily into positive territory and finished strong on the day, with the yield on the note closing at 2.845 percent, a loss of 8.1 basis points. With the advance, treasuries offset the losses posted in the previous session, which took place on Thursday ahead of the extended weekend.
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Investors are likely to draw direction from Tuesday's government reports, which signal the start of a flood of economic data for the week. The Producer Price Index for March is forecasted to remain largely unchanged, while retail sales figures are expected to edge higher, helped by rising gasoline prices and an expected tick up in auto sales.
Further indicative of the dampening of risk-appetite on the day were the Treasury Department's short-term bill auctions, which drew considerable demand.
Earlier today, the government completed its auction of $28.0 billion worth of 3-month bills, drawing a high yield of 0.180 percent. Meanwhile, the auction attracted strong demand, with the bid-to-cover ratio coming in at a level of 3.39. The security is scheduled to mature July 16th, 2009.
Despite the government ramping up offerings over the past three months, the short-term security has enjoyed substantial demand, posting a bid-to-cover ratio of at least 3.0 for the eighth auction in a row.
The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.
Last week, the government sold $30.0 billion worth of 3-months bills, with the sale drawing a yield of 0.200 percent. The auction posted a bid-to-cover ratio of 3.43.
Earlier this afternoon, the Treasury Department sold $27.0 billion worth of 6-month bills, with the auction drawing a high-yield of 0.370 percent and a bid-to-over ratio of 3.73. The bond is set to mature October 15th, 2009.
The previous auction for comparable securities took place early last week, when the government sold $28.0 billion worth of 6-month bills. The auction drew a yield of 0.400 percent, while the bid-to-cover ratio came in at a level of 3.33.
Meanwhile, the New York Federal Reserve continued its treasury buyback program Monday, purchasing approximately $7.37 billion worth of securities with maturity dates ranging from March of 2011 to April of 2012.
The day's buyback saw strong interest, with dealers submitting a total of $26.64 billion in treasuries for the purchase.
Late last week, the Fed purchased approximately $2.97 billion worth of securities with maturity dates ranging from April of 2010 to February of 2011. The buyback saw strong interest, with dealers submitting $31.29 billion in treasuries for the purchase.
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