U.S. Treasury debt prices extended earlier gains Thursday after a $20 billion five-year note auction attracted investors who showed more appetite for this maturity than a month ago.
The bid-to-cover ratio, a gauge of demand, in the latest five-year note sale came in at 2.48, higher than 1.84 in the prior auction, according to the Treasury Department.
"It's very successful and reinforces the idea Treasury investors have backed off the idea of the Fed raising interest rates," Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co. in New York, said of the auction.
Five-year Treasury notes were trading 11/32 higher in price at 100-8/32. Their yield, which moves inversely to their price, was 3.44 percent, compared with 3.45 percent shortly before the auction results were announced. It closed at 3.52 percent on Wednesday.
Benchmark 10-year debt was trading 12/32 higher in price for a yield of 4.05 percent. This was flat versus the yield level shortly before the auction but lower than the 4.10 percent yield late Wednesday.
Data showing higher-than-expected existing home sales in May weighed somewhat on Treasurys, which gained from the outset.
Treasurys also benefited from as stocks trading lower and as talk of more troubles in the financial sector reignited the safe-haven bid for government debt.
The concerns over the health of financial companies were sparked after Goldman Sachssaid Citigroupand Merrill Lynchcould take more write-downs in the second quarter, and after Belgian-Dutch financial services group Fortis said it would sell new shares to raise capital.
"There is talk in the markets about some financial stress still out there, and that seems to be leading to an increased flight-to-quality bid for Treasurys," said Matthew Moore, economic strategist at Banc of America Securities in New York.
The renewed worries over the health of the financial sector come a day after the Federal Reserve opted to leave interest rates unchanged but signaled that inflation was becoming an increasing worry.
Some analysts took the Fed statement as a signal that the central bank might move to tighten monetary policy later this year, but others maintain it would be difficult to raise interest rates while the economy continues to sputter.
The bond market was little affected Thursday morning by an upward revision to first-quarter U.S. growth, and data showing that the number of U.S. workers filing new claims for jobless benefits was unchanged last week.
Investors are now looking ahead for possible market direction to data later Thursday morning on existing home sales, and to an auction of $20 million of 5-year notes Thursday afternoon.