Treasury two-year yields fell to a record as investors sought the safety of U.S. government debt on speculation the Federal Reserve will keep interest rates at all- time lows through 2010. Yields declined to 0.6014 percent, less than the 0.6044 percent set Dec. 17, 2008. That figure was reached after policy makers reduced the target rate for overnight loans between banks to a range of zero to 0.25 percent and said they were considering buying U.S. government debt to help revive the financial markets. “Fed tightening is being moved further and further out into the future,” said William O’Donnell, head U.S. government bond strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut, one of 18 primary dealers that trade with the central bank. “There are still headwinds out there. There’s no glimmer of them even considering a tightening.” Two-year notes are among the most sensitive to Fed rates because of their short maturity. Their yield has fallen from its high this year of 1.176 percent set in April as the fiscal crisis in Europe, U.S. unemployment near 10 percent and signs that inflation is slowing have added to concerns global economic growth will falter. Fed officials retained a pledge to keep their benchmark rate at a record low for an “extended period” on June 23 and signaled Europe’s debt crisis may harm U.S. growth. Policy makers won’t raise borrowing costs until the first quarter of next year, based on the median estimate in a Bloomberg News survey of economists. To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.

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