Treasuries fell after a report showed the economy grew faster than forecast in the second quarter while the Federal Reserve trimmed the monthly pace of bond purchases for the sixth consecutive meeting. Benchmark 10-year note yields rose the most since March as central bank policy makers begin preparations for ending extraordinary monetary stimulus as traders see about a 54 percent chance the Fed will raise the target for its benchmark to at least 0.5 percent by June, based on futures contracts. Policy makers decreased the monthly pace of debt purchases by US$10 billion, to US$25 billion. US two-year note yields pared gains after reaching the highest level in more than three years. “We’ve seen continued improvement in economic growth and the labor market, and that is putting an upward bias on yields,” said Gary Pollack, who manages US$12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “We will gradually grind higher yields this year, but it will be slow and painful.” Pollack said he will trade the range in Treasuries until the employment report scheduled for Aug 1. The 10-year note yield climbed nine basis points, or 0.09 percentage point, to 2.55 percent at 2:40 p.m. in New York, according to Bloomberg Bond Trader prices. The 2.5 percent note maturing in May 2024 dropped 25/32, or US$7.81 per US$1,000 face amount, to 99 18/32. The yield rose as much as 10 basis points, the most since March 19. Market Yields Two-year note yields gained two basis points to 0.56 percent after reaching 0.58 percent, the most since May 19, 2011. “A range of labor-market indicators suggests that there remains significant underutilization of labor resources,” the Federal Open Market Committee said in a statement in Washington. “The likelihood of inflation running persistently below 2 percent has diminished somewhat.” The central bank left its target for overnight lending between banks in the range of zero to 0.25 percent, where it has been since 2008. “The front end has come back a bit,” said Priya Misra, head of US rates strategy at Bank of America Merrill Lynch in New York, one of the 22 primary dealers that trade with the Fed. “The market is taking this as a bit of a dovish sign because of the sentence about significant underutilization.” Maturity Differences The difference between yields on five-year notes and 30- year debt, known as the yield curve, narrowed to as little as 149 basis points, the least since January 2009 as shorter-term yields rose at a faster pace. Shorter maturities are more sensitive to what the Fed does with interest rates, while longer-dated debt is more influenced by the outlook for inflation. “We’re still favoring a flattener because of duration needs in the long end,” said Justin Lederer, an interest rate strategist at Cantor Fitzgerald LP in New York, a primary dealers. “The long end has been the strong part of the curve this year.” A flattener is a trade that profits from a narrowing yield curve while duration refers to the sensitivity of a debt security to changes in interest rates. Benchmark 10-year note yields ended last month at 2.53 percent, down from 3.03 percent at the end of last year, as harsh winter weather slowed economic growth. Unrest between Russia and Ukraine fueled demand for the safety of US debt amid concern that the crisis could boost energy prices in Europe and hinder its nascent recovery. Economic Growth Gross domestic product rose at a 4 percent annualized rate, the most since the third quarter of 2013, after shrinking 2.1 percent from January through March, Commerce Department figures showed. The median forecast of 80 economists surveyed by Bloomberg called for a 3 percent advance. “It’s given the market a well-deserved selloff,” said Jason Rogan, managing director of US government trading at Guggenheim Securities, a New York-based brokerage for institutional investors. “The economy is picking up steam.” US companies have boosted payrolls this year at the fastest pace since 1999, averaging 230,800 through June, Labor Department data show. The unemployment rate fell to 6.1 percent in June, matching the lowest since September 2008. The economy added 231,000 jobs this month, according to the median forecast of 83 economists in a Bloomberg News survey. The European Central Bank and Bank of Japan are also keeping borrowing costs at record lows to help spur growth in their economies. ECB President Mario Draghi in June unveiled an unprecedented round of stimulus measures that included cutting a key rate to negative and he has signaled that policy makers are willing to act again. The European Union curbed Russia’s access to bank financing and advanced technology in its widest-ranging sanctions yet over President Vladimir Putin’s backing of the rebels in Ukraine. Hamas’s military chief ruled out a truce in Gaza until the Islamist group’s demands for an end to the economic embargo of the territory are met, as the Israeli army stepped up its bombardment. Treasuries returned 3.6 percent this year, underperforming European government securities, which gained 8.5 percent, according to Bloomberg World Bond Indexes. Japanese bonds earned 1.8 percent.