Treasuries decline for first time in three days on Fed, Europe

June 19 (Bloomberg) -- Treasuries fell for the first time in three days as the Federal Reserve opens a meeting amid speculation it may do more to boost the economy and investors bet European leaders will make progress on their debt crisis.

U.S. 30-year bond yields rose from the lowest in almost two weeks as a European official signaled Greece may get a revision to the economic-performance targets set as a condition for it to receive international aid. Leaders of Group of 20 nations at a summit in Mexico are focusing their response to the financial crisis on stabilizing European banks.

“The flight-to-quality bid is cooling in the Treasury market,” Adrian Miller, a fixed-income strategist at GMP Securities LLC in New York, said in a telephone interview. “There is increasing optimism out of Europe that there will be positive momentum and support from the G-20 and EU leaders on resolving the European crisis, and an expectation the Fed is getting closer to providing some sort of additional stimulus.”

The 30-year yield climbed four basis points, or 0.04 percentage point, to 2.70 percent at 10:16 a.m. New York time after touching 2.64 percent earlier, the least since June 6. The price of the 3 percent security due May 2042 fell 7/8, or $8.75 per $1,000 face amount, to 106 2/32, according to Bloomberg Bond Trader data.

The benchmark 10-year note yield increased four basis points to 1.62 percent.

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.

Operation Twist

The central bank’s so-called Operation Twist program, in which it’s selling $400 billion of Treasuries maturing in three years or less and buying an equal amount of bonds with a maturity of six years to 30 years to cap borrowing costs, is set to expire this month.

“There’s a slight increase in the odds of Fed action,” said John Briggs, a U.S. government bond strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut, one of the 21 primary dealers that trade with the Fed.

The central bank will purchase as much as $2 billion of Treasuries today due from August 2022 to February 2031 as part of the program, which followed two rounds of debt purchases under quantitative easing, or QE, from 2008 through 2011.

Treasuries remained lower after Commerce Department data showed housing starts in the U.S. dropped 4.8 percent in May to a 708,000 annual pace from a revised 744,000 rate in April that was the highest since October 2008. The median forecast of 77 economists surveyed by Bloomberg News called for a 722,000 pace.

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