Treasuries Advance After Poor New Home Sales Data, Fed Comments

(RTTNews) - Treasuries saw strong gains on Wednesday, as traders sought refuge in the bond market following historically poor new home sales data and troubling comments from the Federal Reserve. However, worse than expected results of a five-year note sale may have limited the strength in the market.

Bond prices bounced around in positive territory for the majority of the session as the markets reacted to the day's news, eventually ending on the upside by sizable margins. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, closed at 3.115 percent, posting a loss of 5.1 basis points.

With the notable decline on the day, the benchmark ten-year yield ended the session at a thirteen-month closing low.

This morning, traders bought into bonds after the Commerce Department reported that new home sales plunged by 32.7 percent to an annual rate of 300,000 in May from the downwardly revised April rate of 446,000. Economists had expected sales to fall to a rate of 430,000 from the 504,000 originally reported for the previous month.

With the monthly decrease, new home sales in May were down 18.3 percent compared to the same month a year ago, falling to their lowest annual rate since the government began tracking the data in 1963.

Bonds saw a choppy outing in the middle of the afternoon, as the Federal Reserve announced that it kept its federal funds rate in a range of zero to 0.25 percent and reiterated that rates will remain at exceptionally low levels for an "extended period" in an effort to boost the budding economic recovery.

Once again, Kansas City Fed President Thomas M. Hoenig voted against the policy action, believing that the Fed should no longer express the expectation of exceptionally low levels of the federal funds rate for an extended period.

In its economic commentary, the Fed was slightly pessimistic, stating that financial circumstances "have become less supportive of economic growth" amid the cloud of the European debt crisis. Nonetheless, the Fed continued to say that economic growth is likely to continue at a moderate pace.

The Treasury Department's $38 billion offering of five-year notes also prompted some mid-day volatility, as the sale netted a high-yield of 1.995 percent and a bid-to-cover ratio of 2.58, both of which were worse than expected.

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

Looking ahead to Thursday, all eyes will be on the latest weekly jobless claims report, while the latest durable goods data is also likely to garner attention. The Treasury also concludes its weekly offering of coupon bonds with a $30 billion offering of seven-year notes.

by RTT Staff Writer

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