Demand for Treasurys holds up even as housing numbers improve; Yields mainly flat

Treasurys edge higher, brush off home sales number

NEW YORK — Interest rates were little changed in the bond market Tuesday even as new signs of strength emerged in the housing market.

The National Association of Realtors said its pending homes sales index rose 1 percent in December, providing the latest evidence the economy is improving. Positive economic reports over the past two days have helped push stocks higher.

The Dow Jones industrial average rose 111 points Tuesday and is up 230 points in two days, its biggest back-to-back gain in three months.

Treasurys often fall on signs of a strengthening economy because investors would be opting for riskier investments that have the potential for bigger returns, like stocks. An improving economy also creates inflation, which must be kept in check by higher interest rates.

However, demand for bonds has been holding up in recent weeks, partly on reassurances from the Federal Reserve that inflation is still at bay. The Fed has also pledged to keep short-term rates at their historic lows for now, another factor that supports the bond market.

The yield on the 10-year Treasury note that matures in November 2019 fell to 3.65 percent in late trading from 3.66 percent late Monday. Its price edged up 3/32 to 97 25/32. That yield is a widely used benchmark for consumer loans including mortgages.

Tom di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC, said the bond market is still benefiting from the traditional rush of buying at the beginning of the year as fund managers build up their portfolios. Di Galoma said demand will likely remain strong through early March.

Fresh signs that demand for U.S. government bonds remains strong among overseas investors was also keeping the market stable, Di Galoma said. Japan Post Bank is reportedly being urged by government officials there to diversify its holdings beyond Japanese government bonds by adding Treasurys.

In other trading, the yield on the two-year note maturing in January 2012 was unchanged at 0.86 percent. Its price was flat at 100 1/32.

The yield of the 30-year bond that matures in November 2039 was unchanged at 4.57 percent, while its price remained at 96 28/32.

The yield on the three-month T-bill that matures May 6 was flat at 0.08 percent. Its discount rate was 0.09 percent.

The cost of borrowing between banks rose fractionally. The British Bankers’ Association said the rate on the three-month loans in dollars — the London Interbank Offered Rate, or Libor — rose to 0.25031 percent from 0.24906 percent.