Natick Condominiums

A combination of a well-bid 10-year note auction, a strong dollar, improvement in consumers' moods and weakening crude oil prices hoisted prices of U.S. Treasury securities sharply higher on Thursday as yields, which move the opposite direction, sagged. But rates on key mortgage products proved resistant to the Treasury price rally and returned to elevated levels posted earlier in the week.

Much of the market's focus riveted on supplies, as the Treasury conducted the final leg of its quarterly refunding. The first two tranches of the $44-billion, three-part refinancing -- the three- and five-year note sales -- drew tepid indirect bidder demand that made traders fret about how the benchmark 10-year note auction would fare.

But prices began rallying late Thursday as it became clear that foreign customers had snapped up the 10-year offering in a well-bid auction. Foreign central banks such as in China and Japan are among the biggest buyers of U.S. Treasury securities, and any hint of slowing demand from them sends shivers through the bond and note markets.

A strong dollar, which touched multi-year peaks this week against the Japanese yen and Euro, and the continued decline in the price of crude oil also added support to Treasuries. Prices stayed resilient despite news of a record-wide, $66.1-billion U.S. trade deficit for September linked largely to rising petroleum prices and imports after three hurricanes. The previous record trade gap was $60.4 billion recorded in February 2005.

Signs that consumer sentiment is on the mend after the three hurricanes raked the Gulf Coast region kept prices on more-solid footing earlier in the session. The preliminary University of Michigan consumer sentiment index unexpectedly bounced up to 79.9 from a prior reading of 74.2. But a slightly stronger-than-expected rise in weekly jobless claims to 326,000 that was attributed to filings after Hurricane Wilma had muted effect.

News that the U.S. budget deficit in October shrank to $47.2 billion from its prior month shortfall also heartened the bond market.

Stocks Shake Off GM, Advance

U.S. stock indexes shook off more bad financial news from General Motors Corp. and posted hefty broad-based gains on Thursday, lifted by many of the same economic fundamentals that sparked the bond market rally.

GM shares, however, ended down $1.12 (-4.55 percent) at $23.51 after the automaker said late Monday it had overstated 2001 earnings, citing mistakes in the way it accounted for suppliers' credits.

Oil companies such as ExxonMobil (-$1.05 or -1.83 percent at $56.45) suffered declines at the hands of lower crude oil prices, while homebuilders including Toll Bros. (+$0.61 or +1.81 percent at $34.33) that were slammed earlier this week managed to recover a portion of those losses.

At 4:00 p.m. EST:

The Dow 30 Industrial Index rallied 93.89 points (+0.89 percent) to 10,640.10; the Nasdaq Composite index advance 20.87 points (0.96 percent) to 2,196.68, and the Standard & Poor's 500 Index rose 10.31 points (+0.84 percent) to end at 1,230.96.

The 30-year Treasury bond rallied 1-13/32 in price with the yield slipping to 4.75 percent from 4.84 percent on Wednesday.

The 10-year Treasury note gained 19/32 in price with the yield slipping to 4.56 percent from 4.64 percent on Wednesday.

The 5-year Treasury note rose 5/32 in price with the yield falling to 4.48 percent from 4.56 percent on Wednesday.

At 4:00 p.m. EST, AVERAGE mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year Conventional Fixed-Rate Mortgage was at 6.123 percent versus 6.105 percent on Wednesday.

The 15-year Conventional Fixed-Rate Mortgage was at 5.675 percent from 5.643 percent on Wednesday.

Coming Up:

Friday is Veterans Day, a government bond market and federal holiday, although U.S. stock markets will observe regular trading hours. No economic data is slated for release until next week.

The pause in bond market trading on Friday for a long weekend might give lenders enough leeway to begin to adjust rates on key products downward after Thursday's Treasury rally had little immediate impact on mortgage rates.

Laura Jacobs

ljacobs@interest.com

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