Dec. 13 (Bloomberg) -- Treasury notes were little changed as interest rates charged by banks for loans in the euro region stayed near a seven-year high, suggesting a Federal Reserve-led plan to revive credit markets is failing.

Government debt recouped losses from yesterday, when two- year notes had their biggest decline in 3 1/2 years and central banks acted after signs that interest-rate cuts in the U.S., the U.K. and Canada weren't enough to encourage bank lending. Bank of America Corp. and Wachovia Corp. said yesterday provisions for loan defaults will increase.

``The market has a wait-and-see attitude on how the central bank measures will impact money markets,'' said Andy Chaytor, an interest-rate strategist at Royal Bank of Scotland Plc in London. ``These questions haven't been resolved after the sell-off and rally back in the bond market. It's all quite choppy trading.''

The yield on the 10-year note rose 1 basis point to 4.10 percent as of 7:07 a.m. New York, according to bond broker Cantor Fitzgerald LP. The price of the 4 1/4 percent security due in November 2017 fell 1/32, or 94 cents per $1,000 face amount, to 101 1/4. Two-year yields fell 1 basis point to 3.13 percent.

The three-month borrowing cost for euros was at 4.95 percent, its highest level since December 2000, according to prices from the European Banking Federation today. Policy makers in the U.S., U.K., Canada, Switzerland and the euro region announced the first coordinated action since Sept. 11, 2001.

The so-called ``TED'' spread, the difference between three- month Treasury bill yields and the London interbank offered rate for the same maturity, was at 2.20 percentage points, near the widest since August. The increase indicates banks are charging more to lend to each other.

`Crisis Continues'

Bank of America, Wachovia and PNC Financial Services Group Inc. yesterday said losses tied to bad debt will be worse than expected, evidence that credit markets aren't returning to normal.

``We're still bullish'' on Treasuries, said Tsutomu Komiya, who helps oversee the equivalent of $29.3 billion of debt at Daiwa Asset Management Co. in Tokyo. ``The subprime crisis continues.'' Komiya said he plans to bet on gains in U.S. government notes in 2008.

Ten-year notes gained as the Treasury Department prepares to sell an additional $8 billion of the securities today, a decrease of $5 billion from the last offering. Investors bid for 2.34 times the amount of debt on offer at the previous auction of this maturity on Nov. 7. The average for the past 10 sales is 2.51.

Four Auctions

The Fed said it will make as much as $24 billion available to the European Central Bank and Swiss National Bank to increase the supply of dollars in Europe. The Fed also plans four auctions to add as much as $40 billion to the U.S. economy.

``It has to be seen if this really helps or if central banks will need additional measures to bring money markets to more normal levels,'' said Karsten Linowsky, a fixed-income strategist at Credit Suisse Group in Zurich. The Treasury market's ``initial reaction was very strong,''

The plan may not matter much, said Richard Yamarone, chief economist at Argus Research in New York.

``It doesn't address the underlying problem here, which is trust,'' Yamarone said. ``Banks don't want to lend to each other because they don't know what the counterparties own and, in all actuality, they don't even know what they own and they don't even know how to price it.''

Three-month Eurodollar futures contracts yielded 4.93 percent, little changed from yesterday, when they fell 14 basis points. The three-month London Interbank Offered Rate, or Libor, for the dollar declined to 5.06 percent yesterday, from 5.14 percent at the end of last week.

Overnight Lending

Futures on the Chicago Board of Trade suggest a 96 percent chance policy makers will cut the target for overnight bank lending to 4 percent on Jan. 30. The Fed, led by Chairman Ben S. Bernanke, has pared the rate by 1 percentage point to 4.25 percent this year.

Ten-year Treasuries yielded 97 basis points more than two- year notes, indicating stronger demand for shorter maturities, those most sensitive to interest-rate expectations. The difference has increased from 72 basis points a month ago.

A Bloomberg survey of economists shows 10-year yields will rise to 4.10 percent and two-year yields will climb to 3.27 percent by March 31.

Price swings in U.S. government debt reached the highest in more than four years yesterday. Merrill Lynch & Co.'s MOVE index, a measure of expectations for Treasury volatility, rose to 142.8, the most since August 2003.

Moves can be exaggerated when trading declines during holiday periods. ``Given the time of year, and the rising market volatility, Credit Suisse is avoiding taking big bets in the money markets at present,'' Keane said.

To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.

Last Updated: December 13, 2007 07:12 EST