TOKYO: Treasury bonds firmed slightly in Asia on Tuesday, ahead of a US Federal Reserve meeting at which the central bank could decide on more monetary stimulus to blunt the impact of Europe's debt crisis on the struggling US economy.
At its regular policy meeting scheduled for Tuesday and Wednesday, the Fed could extend its "Operation Twist" stimulus programme, which expires this month.
Under this, the central bank sells short-term securities to buy longer-term ones, with the aim of driving down long-term borrowing costs. The Fed could also expand the programme by extending the average maturity of its portfolio.
It could also extend its official guidance for when overnight interest rates are likely to rise, now set for late 2014, or even opt for more quantitative easing, which involves expanding its balance sheet through bond purchases.
"There are expectations that the Fed will do something, and the only question is what," said a fixed-income fund manager at a European asset management firm in Tokyo.
Treasuries fell in Asia on Monday, after pro-bailout parties won Greek elections on Sunday, a step seen as key in holding the euro zone together, but they later pared most of the losses as investors awaited the Fed meeting.
The yield on 10-year notes fell to 1.56 percent from 1.58 percent in late US trade, and below 1.65 percent in Tokyo on Monday.
The yields on 30-year bonds stood at 2.65 percent, compared with 2.67 percent in late US trade, and down sharply from 2.76 percent in Tokyo trade on Monday.
At a Group of 20 summit on Monday, Europe agreed to move towards a more integrated banking system to stem the debt crisis that threatens the survival of the euro.
Yields on both Italian and Spanish bonds rose overnight, with Spain's 10-year yield climbing above the 7 percent mark at which other European countries were forced to seek bailouts.
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