June 24 (Bloomberg) -- Treasuries were little changed, ending a three-day gain, before a Federal Reserve statement today that may signal the central bank will buy more debt.

Ten-year yields held near a three-week low after an industry report showed existing home sales rose less than expected, adding to evidence the housing market has yet to make a full recovery. The Treasury will sell $37 billion in five-year notes today, following yesterday’s two-year debt auction, which attracted the most bids since September 2007.

“The Fed may increase the buy-back amount or extend the term to the end of the year,” said Kazuaki Oh’e, a debt salesman in Tokyo at Canadian Imperial Bank of Commerce, the nation’s fifth-biggest bank. “With such announcements, Treasuries would rise. The economic recovery won’t go smoothly, it will take time.”

The 10-year note yielded 3.63 percent at 9:26 a.m. in Tokyo, according to BGCantor Market Data. The price of the 3.125 percent security due May 2019 was unchanged at 95 13/16. The yield reached 3.62 percent yesterday, approaching 3.58 percent, which was touched on June 17 and was the lowest since June 4.

Ten-year Treasury yields will trade between 3.5 percent and 4 percent during the “the next couple of months,” Oh’e said.

Yields on U.S. debt fell yesterday as the National Association of Realtors said sales of existing homes rose less than economists expected. Purchases rose 2.4 percent in May to an annual rate of 4.77 million, below the 4.82 million median forecast in a Bloomberg survey.

Yields on 10-year notes have increased almost 120 basis points from lows seen on March 18, when the Fed announced it would buy as much as $300 billion in U.S. debt over six months in an effort to cap borrowing costs.

Fed Statement

“The Fed is concerned about the rates going higher in the last couple of weeks,” said Hicham Hajhamou, a trader in New York at BNP Paribas, a primary dealer required to bid at government auctions. “They need to contain this market because the government still has a lot of issuance to do. Mortgage rates are shooting up and that has a direct impact on consumers.”

The risk is that higher rates will hold back the budding economic recovery by lifting borrowing costs. The 30-year fixed mortgage rate rose to 5.74 percent earlier this month, the highest since November, before falling to 5.41 percent on June 22, according to Bankrate.com in North Palm Beach, Florida

The policy statement from the Federal Open Market Committee meeting is due today in Washington.

Auction Demand

There’s a 40 percent chance the Fed will raise interest rates by at least a quarter-percentage point to 0.5 percent by December, fed funds futures showed today. The odds were 50 percent a week ago.

Treasuries are poised for their worst quarter since the first three months of 1980 as President Barack Obama borrows record amounts to try to snap the deepest recession in at least 50 years and service budget deficits. The securities have lost 3.6 percent since March 31, according to Merrill Lynch & Co.’s U.S. Treasury Master Index,

Yesterday’s two-year auction, the first of three this week of a record $104 billion in notes, drew bids worth 3.19 times the amount offered, the highest since September 2007. The Treasury will also auction five-year notes today and $27 billion of seven-year securities tomorrow.

The rally in Treasuries was curbed by “the reality that this still is a heavy supply week,” Peter Jolly, head of market research for the investment-banking unit of National Australia Bank Ltd. in Sydney, the nation’s largest lender, wrote in a note dated today.

The U.S. will sell $3.25 trillion of debt in the fiscal year ending Sept. 30, according to primary dealer Goldman Sachs Group Inc. Obama has pushed the nation’s marketable debt to an unprecedented $6.45 trillion. The budget deficit is projected to increase to $1.85 trillion in the year ending Sept. 30, equivalent to 13 percent of the nation’s economy, according to the nonpartisan Congressional Budget Office.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

Last Updated: June 23, 2009 20:39 EDT