Homebuyers are clamoring to capitalize on the lowest interest rates in almost a year, driving total mortgage application volume 9.9 percent higher last week.
The Mortgage Bankers Association's seasonally adjusted weekly index is still 19 percent lower than the same week last year, due to lower refinance volume.
Meanwhile, U.S. producer prices rebounded in August, driven by a surge in the cost of gasoline, and there were also signs of a pickup in underlying producer inflation. The Labor Department said its producer price index for final demand increased 0.2 percent last month after slipping 0.1 percent in July, reported Reuters.
The so-called core PPI, which excludes food, energy and trade services, increased 1.9 percent in the 12 months through August after a similar gain in July. Inflation is being closely watched for clues on the timing of the next interest rate increase from the Federal Reserve.
Investors are looking ahead to tomorrow's Consumer Price Index, a more widely-followed inflation measure.
Treasury yields have surged for the week thus far, with the 10-year yield soaring from its lowest levels of the year.
"Global macro concerns have lowered a bit here," said Michael Dowdall, investment strategist at BMO Global Asset Management. "You also have some relief that damage from Hurricane Irma wasn't as bad as feared."
The Treasury Department auctioned $12 billion in 30-year bonds at a high yield of 2.790 percent. The bid-to-cover ratio, an indicator of demand, was 2.21 versus a recent 10-auction average of 2.28.
Indirect bidders, which include major central banks, were awarded 58.8 percent compared to the recent average of 63 percent. Direct bidders, which includes domestic money managers, bought 6.8 percent compared to the recent average of 7 percent.
This marks the final auction of the week. On Monday and Tuesday the Department sold 3-year and 10-year notes and both sales saw weak demand.
On the commodities front, oil prices rose on Wednesday after the International Energy Agency said global oil demand is set to accelerate faster than anticipated in 2017.
While investors have been breathing a cautious sigh of relief in recent days as Hurricane Irma wasn't as volatile and catastrophic as predicted, market watchers remain on edge as the next hurricane is expected to make landfall soon.
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