Treasuries Finish Higher

Safe-haven demand extended the rally in Treasuries amid reports of a terrorist bombing in Iraq

Demand for Treasuries picked up Tuesday despite more signs of an improving economy. Increased investor appetite, especially for longer-dated, higher yielding securities amid reports of a deadly terrorist bombing at the U.N. headquarters in Baghdad, pushed the yield on the 30-year down over 9 basis points to 5.25%.

While the short end lagged the move all day, buying slowly worked its way down the curve, with the 2-year finally closing at a 1.75% yield. Flight to quality added to bullish technicals, especially as details of the U.N. bombing generated some defensive posturing in stocks. The price gains triggered buy stops to extend the rally.

Adding support to Treasuries was an overnight report that the Taiwan central bank would not follow other central banks in either limiting their demand for, or actually selling off their substantial holdings of Treasuries. News that a top Wall Street strategist also upped his allocation to Treasuries by 5%, out of cash, supported. Stronger than expected housing starts data, up 1.5%, did not get in the way of bulls. And there was little reaction to the dip in consumer confidence to 90.2 from 90.9.