NEW YORK (CNN/Money) -
Treasury prices climbed on Wednesday as strong demand for the second of three quarterly auctions kept the market well bid despite waning interest from foreign central banks.
Meanwhile, the euro rose sharply against the dollar ahead of a trade report, which may show that the U.S. deficit widened in September.
In addition, geopolitical worries further weighed on the dollar, given news of 25 deaths in a bomb blast in Iraq on Wednesday.
Shortly before 4:00 p.m. ET, the euro bought $1.1638, up from $1.1506 late Tuesday. The European currency rose as high as $1.1658 in late New York trading, its highest level against the greenback since October 31.
The dollar, however, strengthened against the Japanese currency. The dollar bought ¥108.81, up slightly from ¥108.77 late Tuesday.
Fueled by weakening dollar, gold prices closed in on the psychologically important $400 mark as the weakness in the U.S. currency against the euro made gold cheaper for European investors and commodity funds.
The benchmark 10-year Treasury note rose 12/32 to 98-27/32, yielding 4.40 percent, down from 4.46 percent late Monday and still stubbornly below 4.50 percent despite recent strong economic data and an improving jobs market. The 30-year bond rose 26/32 of a point to 102-11/32, yielding 5.21 percent, down from 5.27 percent late Monday.
Five-year notes were up 8/32 at 98-25/32 for a yield of 3.40 percent compared with 3.45 percent late Monday, while two-year notes were up 1/32 to 99-8/32, yielding 2.01 percent.
Treasury markets were closed Tuesday in observance of the Veterans Day holiday.
The jump in yields that followed stunningly strong growth and jobs figures over the past two weeks was apparently sufficient to make the new debt attractive to bond investors.
Still, traders said the market had turned quiet after initial excitement over the auction's success, in part due to worries about the 10-year auction on Thursday and key economic data on jobs and retail sales over the next two days.
"The five-year note auction was right on the screws but we have pulled back a little bit since then," Marcello Frustaci, a bond trader at Mizuho Securities in Hoboken, N.J., told Reuters.
The market was particularly concerned that jobless claims numbers Thursday could confirm that the labor picture is improving, after a sharp drop in the preceding week.
Such anxiety did not prevent the $16 billion in five-year notes from being absorbed in earnest. The notes were sold at a high yield of 3.430 percent, at a bid-to-cover ratio of 2.27, compared with 2.25 at the previous five-year auction in October.
Indirect bidders -- mostly foreign central banks -- picked up $4.96 billion, or about 31 percent of the issue, less than at the previous five-year auction and at Monday's three-year auction.
The result stirred fears that the recent sustained drop in the dollar could make U.S. assets less attractive to key buyers like Asian central banks.
"There's been anticipation that now the indirect bidders are going to stop being dominant," Frustaci said. "It'll be interesting to see tomorrow if that indirect bid bounces back or not."
The Treasury is slated to sell $17 billion in 10-year notes Thursday.
Background support for bonds came from expectations that some of the money being withdrawn from scandal-plagued mutual funds, in search of a safe-haven, would be put into Treasurys.
News early Wednesday of a credit downgrade for Ford Motor Co. (F: Research, Estimates) debt to one notch above "junk" status also suggested flight-to-safety buying.
Bonds held their own despite a strong rally in stocks, which were helped along by comments from General Electric Co. (GE: Research, Estimates) Chief Executive Jeff Immelt. Immelt said the sprawling conglomerate sees signs of economic recovery in strengthening orders in its short-cycle businesses, which includes plastics and appliances.
-- from staff and wire reports
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