Treasuries are showing some strength in morning trading on Wednesday, as concern over earnings on Wall Street has prompted some movement out of riskier investments and into government bonds.
Amid grim earnings expectations, some traders considered data from the housing sector that showed a notable increase in mortgage applications. The report showed more positive news out of a sector that has been hit hard by the recession, with some economists speculating that the recent string of data may indicate that the worst is over.
Meanwhile, the benchmark ten-year note is holding firmly in positive territory, pushing the yield on the note down 4 basis points to 2.869 percent. With the gains, treasuries are extending the upward move seen n the previous session.
Later in the day, the Treasury plans to hold a record auction of $35.0 billion worth of three-year notes that are set to mature April 15th, 2012.
The government sold $34.0 billion worth of the security early last month, drawing a high yield of 1.489 percent and posting moderate demand, with the bid-to-cover ratio coming in at 2.26.
Thursday, the government plans to sell $18.0 billion worth of ten-year notes. Traders will be focused on the results of the sale, 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.
The previous auction of ten-year notes took place early last month, when the Treasury sold $18.0 billion worth of the notes. 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 are digesting data from the Mortgage Banker's 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.
While the purchases index rose 11.1 percent to a level of 297.7, the highest since mid January, the refinancing index advanced by 3.2 percent, bringing the figure to 6,813.5.
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