Treasury two-year yields remained higher following a back-to-back climb amid speculation the Federal Reserve will decide to take more steps to stimulate the economy at a meeting that ends today.
The Fed’s so-called Operation Twist, in which the central bank sells shorter-dated Treasuries and buys an equal amount of longer-dated debt, is set to expire this month. Thirty-year bonds snapped a decline before Spain auctions bonds tomorrow as European leaders struggle to contain the region’s debt crisis.
“I expect the Fed to extend the Twist operation,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest bank by market value. “Treasuries are being bought amid a flight to quality.
Two-year yields were unchanged at 0.29 percent as of 7 a.m. in London after gaining two basis points over the past two days. The 0.25 percent security maturing in May 2014 traded at 99 29/32, according to Bloomberg Bond Trader data. Thirty-year yields were little changed at 2.73 percent after rising seven basis points yesterday. The benchmark 10-year rate was unchanged at 1.62 percent.
Japan’s 10-year bond yield increased 1 1/2 basis points to 0.82 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. It declined to a nine-year low of 0.79 percent on June 4.
Fed Chairman Ben S. Bernanke said on June 7 that Europe’s situation poses ‘‘significant risks” to the U.S. economy and that the Fed was prepared to take action if necessary. Since then, the Standard & Poor’s 500 Index of share has climbed 3.3 percent, while two-year yields advanced two basis points.
Operation Twist

The Fed may prolong the Operation Twist program to January 2013, according to Credit Suisse Group AG analysts. An extension would involve Treasuries and mortgage-backed securities, the analysts, led by Carl Lantz, head of interest-rate strategy in New York, wrote in a research note yesterday.
Of the 64 analysts surveyed by Bloomberg News, 37 of them said they expect the Fed to extend the program today.
The extra yield investors demand to hold 30-year debt instead of two-year notes shrank to 2.27 percentage points on June 1, the least since January 2009. It was at 2.44 percentage points today.
Thirty-year rates are projected to rise to 3.24 percent by year-end, while two-year yields may climb to 0.39 percent, according to strategist estimates compiled by Bloomberg.
Treasuries have returned 3.1 percent since the end of March, according to Bank of America Merrill Lynch indexes, amid concern Europe’s debt crisis will weigh on U.S. growth. The S&P 500 has lost 3.1 percent during the period even after taking account of reinvested dividends.
Lower Volume

Trading volume has shrunk, with about $214 billion of Treasuries changing hands yesterday through ICAP Plc, the world’s largest interdealer broker. That compared with an average of $254 billion over the past year.
Investors are on hold ahead of today’s conclusion of the Fed meeting given “the uncertainty regarding the possible outcomes,” Brian Hanes and Chris Ahrens, analysts at UBS AG, wrote in a report yesterday.
Spain is scheduled to offer bonds tomorrow maturing 2014, 2015 and 2017. The nation held its first debt auction yesterday since becoming the fourth euro member to seek a bailout earlier this month. Spain sold 12-month bills at an average yield of 5.074 percent, the most on record going back to 2004, data compiled by Bloomberg showed.
Euro-area members of the Group of 20 will take all necessary policy measures to improve the functioning of financial markets and break the “feedback loop” between sovereigns and banks, the group said in a statement yesterday after the summit in Los Cabos, Mexico.
The U.S. Treasury is scheduled to announce tomorrow the amount of bonds it will auction next week. It will probably sell $35 billion of two-year notes on June 26, the same amount of five-year securities the next day and $29 billion of seven-year debt on June 28, according to Wrightson ICAP LLC, an economic advisory company in Jersey City, New Jersey.
The May 22 auction of two-year notes attracted bids valued at 3.95 times the amount on offer, the most since November.
To contact the reporter on this story: Masaki Kondo in Singapore at [email protected].
To contact the editor responsible for this story: Rocky Swift at [email protected].
June 20 (Bloomberg) -- Michael Buchanan, chief Asia-Pacific economist at Goldman Sachs Group Inc. in Hong Kong, talks about Europe's sovereign debt crisis, Federal Reserve monetary policy and its implications for Asia's economies. He speaks with Susan Li, Rishaad Salamat, Mia Saini and Zeb Eckert on Bloomberg Television's "Asia Edge." (Source: Bloomberg) June 20 (Bloomberg) -- Emmanuel Ng, an economist and currency strategist at Oversea-Chinese Banking Corp. in Singapore, talks about Europe's sovereign debt crisis, Federal Reserve monetary policy, and global currencies. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg) June 20 (Bloomberg) -- Jason Brady, a managing director at Thornburg Investment Management in Santa Fe, New Mexico, talks about the impact of the European debt crisis on global financial markets, his expectations for Federal Reserve monetary policy and his investment strategy. Brady speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)