Treasuries Close Moderately Higher Following Five-Year Note Auction

(RTTNews) - Treasuries saw some volatility over the course of the trading day on Tuesday but managed to maintain a positive bias and close moderately higher.

Bond prices moved to the upside in afternoon trading but still closed well off their highs for the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.9 basis points to 2.462 percent.

The higher close by treasuries partly reflected a positive reaction to the results of the Treasury Department's auction of $35 billion worth of five-year notes, which attracted above average demand.

The five-year note auction drew a high yield of 1.72 percent and a bid-to-cover ratio of 2.81, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.72.

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

Peter Boockvar, managing director at the Lindsey Group, said, "After the soft 2-year note auction yesterday, today's 5-year auction was much better."

"Bottom line, the 2nd highest yield at a 5-year auction since the spring of 2011 brought out attractive demand ahead of tomorrow's 2 pm FOMC statement," he added.

Earlier in the session, treasuries fluctuated as traders weighed much better than expected consumer confidence data against news of new European sanctions against Russia.

Traders were also looking ahead to the Federal Reserve's announcement of its latest monetary policy decision on Wednesday.

The Fed is widely expected to announce another $10 billion reduction in the pace of its asset purchases, slowing the pace of purchases to $25 billion a month.

Traders are likely to pay close attention to the Fed's accompanying statement, looking for indications regarding the outlook for interest rates.

While the Fed announcement is likely to be in focus on Wednesday, reports on private sector employment and second quarter GDP may also attract some attention along with the Treasury's auction of $29 billion worth of seven-year notes.