By Deborah Levine

Treasurys were mostly higher Monday, pushing yields down after the Federal Reserve said it had begun buying mortgage-backed securities.

Gains were limited, however, amid concern about increasing government debt issuance starting this week.

Two-year note yields (UST2YR) fell 6 basis points to 0.81%. A basis point is one one-hundredth of a percent.

Ten-year note yields (UST10Y) were little changed at 2.41%, after earlier rising as high as 2.52%.

The Fed's New York branch said Monday it has begun purchasing fixed-rate mortgage-backed securities guaranteed by Fannie Mae (FNM), Freddie Mac (FRE) 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 has also 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.

The Treasury Department will announce at 11 a.m. Eastern time how much in three- and 10-year notes it will auction this week.

The government will likely sell $30 billion in three-year notes (UST3YR) on Wednesday, according to Wrightston 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 10-year note auction Thursday 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, Wrightson said. However, analysts there expect $12 billion to be offered.

On Tuesday, the government will sell $8 billion in inflation-protected securities.

A report Monday showed construction spending declined by 0.6% in November, less than some economists' had forecast.

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.

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