Ten-year note yields were little changed at 1.58 percent after falling earlier to 1.56 percent. They fell on June 1 to 1.44 percent, a record.

'We Drift'

“All eyes are on Europe and the Fed,” said Thomas Simons, a government-debt economist in New York at the primary dealer Jefferies Group Inc. “There is a ton of stuff that is supposed to happen later in the week, but until then we drift. It's not advised to put on any position in any direction given the amount of uncertainty out there.”

The Fed bought Treasuries today due from February 2037 to November 2041 as part of its Operation Twist program to replace $400 billion of short-term debt in its portfolio with longer- term Treasuries in an effort to lower borrowing costs.

The central bank sold $8.6 billion of Treasuries earlier due from May 2013 to November 2013.

As the U.S. recovery slows and the central bank's efforts to boost growth expire, there's no consensus among the biggest bond dealers that the central bank will begin a fourth round of economic stimulus with consumer and corporate borrowing costs already at record lows.

Stimulus Bets

Signs of faltering growth amid European debt turmoil, combined with inflation below the central bank's 2 percent target, mean the Fed will announce new steps to boost the economy as soon as this week, according to 12 of the 21 primary dealers. The rest don't expect action and some say yields near all-time lows limit the effectiveness of more measures by policy makers.

The Fed kept the economy growing for nine straight quarters by pumping $2.3 trillion into the financial system in two rounds of a tactic called quantitative easing, and by shifting $400 billion into longer-term debt. Bank of America Merrill Lynch bond indexes show yields on corporate bonds have fallen to 3.44 percent from more than 8 percent in early 2009.

Royal Bank of Scotland Group Plc's RBS Securities unit, a primary dealer, forecasts a 60 percent likelihood of additional Fed stimulus through more buying of longer-maturity issues or additional asset purchases.

Further action might have “diminishing impact, but if the impact's diminishing, that doesn't mean they shouldn't do it,” said John Briggs, a U.S. government bond strategist at RBS in Stamford, Connecticut.

Inflation Outlook

The yield gap between 10-year notes and Treasury Inflation Protected Securities, or TIPS, which signals traders' outlook for the rate of inflation over the life of the debt, touched 2.10 percentage points. It reached a 2012 low of 1.9 percentage points on Jan. 3 and a high of 2.45 percentage points March 20. The five-year average is 2.02 percentage points.

A valuation measure showed U.S. 10-year notes are at almost the most expensive levels ever. The term premium, a model created by economists at the Fed, was at negative 0.89 percent, after reaching a record of negative 0.94 percent on June 1. The average over the past year is negative 0.48 percent. A negative reading indicates investors are willing to accept yields below what's considered fair value.

Greek Election

Antonis Samaras, leader of Greece's New Democracy party, said he will work with pro-European parties to form a national salvation government. Samaras, whose party came first in June 17 elections, spoke at the start of a meeting with President Karolos Papoulias, where he received a three-day mandate to form a government.

Group of 20 nations chiefs began a two-day meeting in Mexico today as Spanish borrowing costs soared to a euro-era record. Spain's 10-year yield climbed as much as 41 basis points to 7.29 percent, while the euro weakened 0.6 percent to $1.2564 after strengthening earlier to $1.2748.

German 10-year bund yields fell two basis points to 1.41 percent, reversing an earlier increase. They touched a record low 1.13 percent on June 1. U.K. 10-year bonds were little changed at 1.66 percent, after reaching 1.44 percent on June 1.

The U.S. and U.K. are the “cleanest dirty shirts” for bond investors, according to Bill Gross, who runs the world's largest bond mutual fund at Pacific Investment Management Co.

Gross said Germany is in a bond-market bubble, as the country is saddled with rising liabilities from the region's debt crisis. He spoke in an interview on Bloomberg Television's “Market Makers” with Erik Schatzker and Stephanie Ruhle.

Bloomberg News

Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.