Treasuries Continue To Trend Higher Amid Budget Worries

(RTTNews) - Extending the upward trend seen over the past two weeks, treasuries moved notably higher over the course of the trading session on Wednesday.

Bond prices moved steadily higher for much of the session before closing firmly in positive territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.9 basis points to 2.614 percent.

The drop extended the recent downward move by the ten-year yield, which closed lower for the tenth time in eleven sessions and hit its lowest closing level in a month.

Treasuries seemed to benefit from lingering concerns about the possibility of a government shutdown at the end of the month.

While the Senate unanimously voted to begin debate on the House-passed bill that temporarily funds the government but cuts off funding for President Obama's healthcare reform law, Democrats are expected to strip the language defunding Obamacare before sending the bill back to the House.

The Republican leadership would then have to decide whether to bring the Senate bill up for a vote or risk a government shutdown.

If lawmakers manage to overcome the impasse over funding for Obamacare and keep the government running past next Monday, the issue of the debt limit is likely to quickly take center stage.

Treasury Secretary Jack Lew sent a letter to Congress on Wednesday warning that the extraordinary measures the Treasury is employing to preserve U.S. borrowing capacity will be exhausted no later than October 17th.

Further buying interest was seen in afternoon trading following the release of the results of the Treasury's auction of $35 billion worth of five-year notes, which attracted average demand.

The five-year note auction drew a high yield of 1.436 percent and a bid-to-cover ratio of 2.67, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.70.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Finishing off this week's series of long-term securities auctions, the Treasury is due to sell $29 billion worth of seven-year notes on Thursday.

Trading on Thursday could also be impacted by the release of another batch of economic data, including reports on weekly jobless claims, pending home sales, and second quarter GDP.