Treasurys hold gains after strong 5-year auction



Treasurys rose on Wednesday after the U.S. government's auction of five-year Treasury notes, the second of three debt auctions this week.

The Treasury Department auctioned $35 billion in five-year notes at a high yield of 1.732 percent, the highest rate since May 2011. The bid-to-cover ratio, an indicator of demand, was 2.79, versus a recent average of 2.62.

The benchmark 10-year U.S. Treasury note was last up 7/32 in price to yield 2.69 percent, from 2.726 percent late Tuesday. Prices on 30-year Treasury bonds were last up 15/32 to yield 3.47 percent, from 3.5 percent late Tuesday.

Prices on were last up 4/32 to yield 1.71 percent, from 1.75 percent late Tuesday.

Bonds gained traction earlier after weak U.S economic data spurred safe-haven bids and traders covered short positions against bonds following a recent selloff.

The Commerce Department said sales of new U.S. single-family homes dropped 14.5 percent to a seasonally adjusted annual rate of 384,000 units in March, declining for a second consecutive month.

Financial data firm Markit, meanwhile, said its preliminary, or "flash," U.S. Manufacturing Purchasing Managers Index dipped to 55.4 in April from 55.5 in March. Economists polled by Reuters expected a reading of 56.0.

"You cannot continue to attribute this weakness in the economy to the weather, and that's why people were a little surprised," said Stanley Sun, interest rate strategist at Nomura Securities International in New York.

Some traders had expected a continuation of better U.S. economic data to show that activity was improving after a brutally cold winter.

Traders also said market participants were covering short positions after a selloff in safe-haven bonds in recent sessions after a joint statement from Russia, Ukraine, the European Union and the United States on Thursday to ease tensions in Ukraine.

The difference between the share of investors who are short longer-dated Treasuries than those who are long rose to its highest level in about 11 months, a J.P. Morgan Securities survey released on Tuesday showed.

The share of "short" investors exceeded the share of "long" investors by 23 percentage points on Monday, up from 21 points last week. This was the most since May 28, 2013, it said.

"The market got itself a bit short," said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco. "As prices decline, buyers will step in."

—By Reuters with CNBC