Short-term Treasurys gained Monday, pushing yields down after the Federal Reserve said it had begun buying mortgage-backed securities.
Gains were limited and longer-term yields rose, however, due to concern about increasing government-debt issuance starting with $166 billion this week.
Two-year note yields fell 8 basis points to 0.78%. A basis point is one one-hundredth of a percent.
Ten-year note yields ) rose 8 basis points to 2.48%. Thirty-year bond yields jumped by the most since September, up 22 basis points to 3.03%.
The Fed's New York branch said Monday it has begun purchasing fixed-rate mortgage-backed securities guaranteed by Fannie Mae , Freddie Mac and Ginnie Mae.
The purchases follow an announcement made in November that the Fed would buy up to $500 million in mortgage-backed debt from the major government-sponsored agencies to support the housing market.
The Fed will not release details on what it's purchased or how much until Thursday, and will then update those details weekly. The U.S. central bank also has purchased debt directly issued by the agencies in the last month.
Treasurys benefit when the Fed buys other kinds of debt because the purchases lower the duration of an investor's portfolio, said Andrew Brenner, co-head of structured products and emerging markets at MF Global.
Duration is a measure of the sensitivity of the price of a fixed-income asset to a change in interest rates, and is partially determined by maturity. An investor who wants to maintain their duration could buy long-term Treasurys to make up the difference.
More bonds coming
The Treasury Department will sell $30 billion in 3-year notes on Wednesday, in line with expectations of Wrightson ICAP, a research firm specializing in government finance.
The Treasury began reissuing the maturity monthly in November after a long break, and is expected to continue "aggressively" increasing the amount offered, Wrightson said.
The government will also auction $16 billion in 10-year notes on Thursday, more than anticipated.
The sale will be a second reopening of the quarterly issue, meaning the security will carry the same yield and maturity as the notes issued in November.
The government usually reopens the 10-year note sale a month after the original offering. But this is the first time in some years that it's having a second reopening, making the size difficult to estimate, according to Wrightson. However, analysts there expected $12 billion to be offered.
On Tuesday, the government will sell $8 billion in inflation-protected securities. Another $112 billion in short-term bill auctions are also scheduled.
A report Monday showed construction spending declined by 0.6% in November, less than some economists had forecast. See full story on U.S. construction data.
Treasurys also maintain some appeal in expectation of a constant march of economic data that is expected to indicate the recession is far from over.
