Prices of U.S. Treasury notes rose Thursday after a government report showed that the pace of new home sales fell more than forecast and demand in an auction of five-year notes exceeded expectations.

“There’s real investor demand at these yield levels,” said Dan Orlando, head of U.S. Treasury trading in New York at Deutsche Bank, one of the 21 primary dealers that underwrite Treasury auctions. “The situation has not improved materially” since the Fed lowered rates on Sept. 18, yet the auctions gave investors an opportunity to buy “at much better levels.”

Other gauges of demand also rose. Dealers and investors placed bids for 2.86 times the amount being sold, compared with 2.74 at the previous monthly five-year note auction on Aug. 30 and the highest since August 2006.

“It will take more time to know whether this is a recession-proof economy or not,” said Glen Capelo, a trader at RBS Greenwich Capital in Connecticut.

Treasury notes initially rose before the auction on a Commerce Department report showing the pace of new home sales fell 8.3 percent to an annual rate of 795,000 last month from a revised 867,000 in July. The median forecast of 72 economists surveyed by Bloomberg News was 825,000.

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Posted: 09|29|07 at 9:56 am. Filed under: Auction News.