Treasurys closed mostly higher Wednesday after an unexpected drop in orders for big-ticket manufactured goods stirred concerns about the health of the economy. Strong demand at a 2-year note auction also lifted prices.The Commerce Department's report that orders for durable goods fell 1.7 percent last month touched off fresh concerns about whether recent optimism about the economy's prospects might have been overwrought. Analysts had expected an increase in orders. The agency also said sales of new homes fell in February for the fourth straight month, sending activity to a 13-year low as the housing pullback continued. However, the 1.8 percent decline came in better than economists surveyed by Thomson Financial/IFR had expected.



The reports generally appeared to remind investors that despite recent steps by the Federal Reserve — including a buyout deal for Bear Stearns Cos. hatched at policymaker's behest — troubles remain in the banking sector and the overall economy. That had investors seeking the safety of government debt.

"Obviously fear is outweighing supply. People would rather have a Treasury on their book than a mortgage," said John Jenney, vice president for fixed income at Smith Affiliated Capital in New York.

"Today's durable goods figures were nothing to write home about," Jenney said, though he noted the housing figures were mixed.

The benchmark 10-year Treasury note rose 8/32 to 100 6/32, and yielded 3.48 percent, down from 3.51 percent late Tuesday, according to BGCantor Market Data. Prices and yields move in opposite directions.

The 2-year note rose 6/32 to 100 20/32, with a yield of 1.66 percent, down from 1.77 percent late Tuesday.

Longer-term bets saw demand fall slightly. The 30-year long bond fell 12/32 to 100 26/32, with a yield of 4.32 percent, up from 4.31 percent.

In after-hours trading, bond prices extended their gains, sending yields even lower. As of 5:30 p.m. EDT, the 10-year yield was at 3.46 percent, while the 2-year yield was 1.62 percent. But the 30-year yield rose to 4.33 percent.

The 3-month bill yielded 1.26 percent, down from 1.31 percent on Tuesday; and the discount rate fell to 1.24 percent from 1.28 percent on Tuesday.

Wednesday's auction, a record $28 billion in size, drew strong demand. This has occurred often in the past year as investors have sought the safest investments amid uncertainty about the economy.

"We had pretty aggressive bidding. It has knocked down yields a bit," said Action Economics Chief Economist Mike Englund, noting that the number of bids outpaced the available securities.

"There does seem to be substantial flight to quality affecting the short-end of the curve," he said.

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