(Bloomberg) -- Treasuries advanced after Federal Reserve ViceChairman Stanley Fischer that while higher interest rates arewarranted this year, economic developments will guide the pace andextent of increases.

The 10-year note yield was close to six-week lows as Fischersaid interest rates “will sometimes have tobe increased, and sometimes decreased” during normalization fromthe zero level. Investors are questioning the sustainability ofU.S. economic strength after the Fed lowered its growth andinterest-rate assessments last week.

“His speech makes it clear any thought you may have had of aseries of consecutive rate hikes is being proven false,” said DanGreenhaus, chief global strategist in New York at BTIG LLC. “Theymay also reduce rates along the way.”

The 10-year yield fell two basis points, or 0.02 percentagepoint, to 1.91 percent at 4:13 p.m. in New York, according toBloomberg Bond Trader data. The yield reached 1.90 percent on March19, the lowest since Feb. 9.

The U.S. two-year note yield was little changed as the U.S.prepares to sell $26 billion of the securities Tuesday.

Rates Path

“A smooth path upward in the federal funds rate will almostcertainly not be realized” as the economy will encounter shockssuch as the surprise plunge in oil prices or future geopoliticalcrises, Fischer said Monday in remarks prepared for delivery to theEconomic Club of New York. He said while forward guidance on ratesremains important, its role may diminish.

In lowering its assessment of the economy, the central bank lastweek said growth has “moderated somewhat.” Export growth has sloweramid dollar strength and the housing recovery remains slow,according to the Fed statement after the March 17-18 policymeeting.

The central bank cut forecasts for its benchmark interest rateduring the next two years, lowering the federal funds rate at theend of 2015 to 0.625 percent from December’s estimate of 1.125percent, according to the Fed statement.

“If you were concerned about the Fed moving on the early side,Fischer’s comments today didn’t make you any more worried,” saidThomas Simons, a government-debt economist in New York at JefferiesGroup LLC, one of 22 primary dealers that trade with the Fed.

Fed Outlook

The Fed will raise the rate in about 6.8 months, based on amodel using fed funds futures contracts by Morgan Stanley. Thegauge rose as high last week as 7.2 months on Wednesday, after Fedofficials slashed forecasts.

The Fed has held its target for the federal funds rate atvirtually zero since December 2008 to support jobs and economic growth.

Demand for government debt was bolstered earlier as Germany andGreece try to eke out a bailout deal to save the struggling Greekeconomy.

The U.S. is scheduled to sell $35 billion of five-year notes and$13 billion in two-year floating-rate notes on March 25 along with$29 billion of seven-year notes the following day.

There’s still an “influx of cash in the bond market,” said JimVogel, head of interest-rate strategy at FTN Financial in Memphis,Tennessee. Treasuries will draw “steady demand” from overseasaccounts, he said.

--With assistance from Alexandra Scaggs in New York.

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