By Deborah Levine, MarketWatch NEW YORK (MarketWatch) -- Treasury prices edged higher Wednesday, nudging down short-term yields, as bond traders played it cautious ahead of the government's auction of 5-year notes, scheduled to take place just before the end of the Federal Reserve meeting to review the economy, interest rates and monetary policy. Yields on 2-year debt (UST2YR 0.69, +0.00, +0.44%) , which are more closely tied to interest-rate expectations, slipped 1 basis point to 0.70%, not far above the lowest level on record. They closed Tuesday at the lowest since December. Bond yields move inversely to prices. A basis point is 0.01%. Yields on 10-year notes (UST10Y 3.14, -0.02, -0.76%) were little changed at 3.18%. The yield closed Tuesday at the lowest in a month. The meeting of the Federal Open Market Committee ends at 2:15 Eastern time, when it will release a statement with its economic and policy outlook. The FOMC decision "should lean dovish as the Fed will highlight the problems with euro and European sovereign risk as a real drag on potential growth in the U.S.," said Tom di Galoma, head of U.S. rates trading at Guggenheim Partners. Officials might also mention last month's weaker-than-expected U.S. jobs data as well as the ongoing oil spill in the Gulf of Mexico as factors contributing to what's already a gloomy outlook, he said. Central bank officials are likely to reiterate that interest rates will remain low for an extended period and that some economic data have softened, said John Spinello, a strategist at Jefferies & Co. "Any concern for a double-dip scenario is the unlikely outcome," he said. The biggest bond dealers forecast no change in the federal funds rate this year, and they expect the Fed to first use its other tools -- including reverse repurchase operations and term deposit auctions -- to normalize monetary policy, according to a MarketWatch survey. Read about Fed, bond yield forecasts. Still, bond yields will rise into the end of the year as global economic growth becomes steadier, they said. Ahead of that, the Treasury Department will auction $38 billion in 5-year notes (UST5YR 1.94, -0.03, -1.38%) , accepting bids until 1 p.m. Eastern. That's follows Tuesday's 2-year auction, which received very strong demand even though it came at the lowest yield on record for an auction -- and so the lowest cost to the government. That success came without much of a selloff ahead of the auction, pressure that dealers try to exert in the hopes of getting a better price at the auction. "Granted, 2-year auctions are almost always well-received by the market and maybe we shouldn't read that much into it," said George Goncalves, a bond strategist at Nomura Securities. "Such a strong auction, coming without any noticeable concession, can only bode well for upcoming 5-year and 7-year supply." The government will end the week's sales with $30 billion in 7-year notes (UST7YR 2.60, -0.03, -0.95%) to be auctioned on Thursday.

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