10-year Treasury yield bounces off 19-month low

By Ben Rooney, staff reporter

NEW YORK (CNNMoney.com) -- Treasury yields edged higher Wednesday, rebounding from earlier lows, as investors digested a $36 billion sale of 5-year notes and another dour report on the housing market.

The yield on the benchmark 10-year note rose to 2.54% from 2.49% late Tuesday, when the yield fell to the lowest level since Jan. 20, 2009, according to data from the Federal Reserve.

The yield on the 2-year note rose to 0.53% after holding near record lows this week. The 5-year yield rose to 1.38%; the 30-year yield edged up to 3.57%.

Meanwhile, the 5-year note auction received bids totaling $101.7 billion for the $36 billion worth of notes sold. The bid-to-cover ratio, a measure of demand, was 2.83. That's down from last 5-year sale in July, but above this year's average of 2.74.

It was the second of three auctions aimed at selling $102 billion in U.S. debt this week. Demand at Tuesday's sale of $37 billion worth of 2-year notes was firm, but came in slightly weaker than previous 2-year sales this year. The U.S. will offer $29 billion in 7-year notes on Thursday.

Shaky economy sparks buying: Despite the modest rebound on Wednesday, Treasury yields have been under pressure this week amid growing concern over the nation's economic outlook. Many investors view U.S. notes and bonds as among the most secure assets available.

Treasury prices and yields move in opposite direction, so when investors get spooked and start buying up government-backed debt, yields fall.

"With weakness in both the U.S. and global economies, investors are looking for a safe and liquid place to park their cash," said Kim Rupert, a fixed-income analyst at Action Economics.

Some traders are now considering the possibility that the yield on the 10-year note could fall to 2%, said Rupert. That would match the record lows of December 2008. "It's not our call," she said. "But you can see where those forecasts are coming from given the economic news of late."

However, investors regained some appetite for more risky assets late in the day. Stocks finished higher after spending most of the day in the red, following another round of dismal housing news.

A report from the Commerce Department showed that sales of new homes dropped 12.4% in July to their lowest level since the government started tracking the data in 1963.

It was the second scary housing report in as many days. On Tuesday, an industry group said sales of existing homes fell 27% in July as a government tax credit expired.

A separate report from the Commerce Department Wednesday showed that new orders for long-lasting goods rose much more modestly than economists had predicted in July.

Looking ahead: "It's hard to chase the market here," said Rupert. "I think investors may wait for more new data or signs from Bernanke that the Fed might turn more accommodative again."

Ben Bernanke, chairman of the Federal Reserve, is scheduled to make a speech in Jackson Hole, Wyo., later this week. Investors are also awaiting revised numbers on second-quarter U.S. gross domestic product on Friday.

The central bank unnerved investors earlier this month when it issued one of its most bearish economic outlooks in more than a year. The Fed also announced in its Aug. 10 policy statement that it will resume buying U.S. Treasurys using proceeds from other assets in its $2 trillion portfolio.

The Fed bought $1.3 billion worth of Treasurys Wednesday, according to data from the Federal Reserve bank of New York. To top of page

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