Disappointing Five-Year Note Auction Weighs On Treasuries

(RTTNews) - After initially showing a lack of direction, treasuries came under pressure over the course of the trading day on Wednesday.

Bond prices showed a notable move to the downside in afternoon trading, ending the day firmly in the red. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.4 basis points to 2.569 percent.

The pullback by treasuries was partly in reaction to the results of the Treasury Department's auction of $35 billion worth of five-year notes, which attracted below average demand.

The five-year note auction drew a high yield of 1.80 percent and a bid-to-cover ratio of 2.56, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.75.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

A report from the Commerce Department showing a substantial increase in new home sales in the month of August also weighed on treasuries.

The report said new home sales surged up 18.0 percent to a seasonally adjusted annual rate of 504,000 in August from the revised July rate of 427,000. Economists had been expecting new home sales to climb to an annual rate of 430,000.

With the much bigger than expected increase, new home sales reached their highest level since a matching annual rate in May of 2008.

Economic data may also attract some attention on Thursday, with trader likely to keep an eye on reports on durable goods orders and weekly jobless claims.

Trading could also be impacted by reaction to the results of the Treasury's auction of $29 billion worth of seven-year notes.