NEW YORK (CNN/Money) - U.S. Treasurys recouped early losses Wednesday after an auction of new five-year debt drew robust demand, including from foreign central banks.
Around 3:15 p.m. ET, the five-year note gained 5/32 of a point in price to 100-24/32 for a yield of 3.20 percent, while the two-year note bounced 1/32 of a point to 100-3/32, yielding 1.81 percent .
The benchmark 10-year note added 1/4 of a point to 100-1/32 to yield 4.24 percent, down from 4.27 percent late Tuesday. The 30-year bond edged 12/32 of a point higher to 104-10/32 with a yield of 5.07 percent, down from 5.10 percent late Tuesday.
The Treasury successfully auctioned $16 billion in new five-year notes at a yield of 3.26 percent during afternoon trading, with U.S. primary dealers taking $9.43 billion.
Indirect bidders, which mainly comprise foreign central banks, picked up 40 percent of the issue, beating last month's 34.6 percent. Traders had been looking for stronger demand, given the Bank of Japan is believed to have bought huge amounts of dollars this week to restrain a rise in the yen.
The Bank of Japan was thought to have bought an astonishing $28 billion in just the first two days of this week in an attempt to support the yen. Traders assumed much of this money will end up in Treasurys.
The dollar gained slightly against the yen Wednesday, buying ¥106.21, up from ¥106.12 late Tuesday. The dollar also rebounded a bit against the euro, at $1.2647 per euro, down from $1.2664 late yesterday.
Alan Ruskin, chief economist at 4CAST, noted central banks like the BOJ were doing the Federal Reserve, and the White House for that matter, a big favor by holding Treasury yields down.
"$200 billion Treasury purchases from the Fed would have been widely viewed as a massive distortion, but foreign central banks doing exactly the same thing is quietly sanctioned and encouraged by U.S. policymakers," Ruskin said.
Among speakers Wednesday, U.S. Treasury Secretary John Snow was predictably upbeat on the economy while arguing that a projected budget deficit of $500 billion this year was manageable.
Snow also expressed no concern about the U.S. dollar's steep plunge against other currencies.
Fed Board Gov. Donald Kohn was set to speak on "The United States and the World Economy" at the Federal Reserve Bank of Atlanta at 8 p.m. ET.
Fed officials have been keen to reassure the bond market they are in no rush to raise interest rates even though the flow of economic data has been very upbeat in recent months. Data has also shown little sign of inflation, which an enemy to the bond investors as it erodes the value of his investments.
These occurrences have tended to anchor yields for short-term debt and led to a modest further deepening of the yield curve.
No major economic news was released Wednesday, and many investors looked ahead to Friday's December unemployment report.
-- from staff and wire reports
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