Treasurys mixed amid investor optimism

NEW YORK (CNNMoney.com) -- Treasury prices were mixed Monday as investors returned to the market after two holiday-shortened, thin trading weeks with confidence that economic recovery will take a stronger hold in 2010.

Sharp sell-offs during December have made Treasury prices more attractive and encouraged buying of short-term Treasurys, but investors geared up for the government's release of a positive December jobs report due Friday and sold dated bonds.

"There's hope that we're going to see job creation instead of job destruction," said Bill Larkin, portfolio manager at Cabot Money Management. "Then the debate on when the Fed will raise interest rates will rage throughout this year."

A consensus survey of economists by Briefing.com predicts payrolls will remain flat during the month, without job losses or gains. The unemployment rate is expected to rise to 10.1%.

The Federal Reserve has kept its key interest rate between 0% and 0.25% since last December in an effort to stimulate the economy. In its most recent policy statement last month, the Fed suggested it will hold interest rates near the historic lows because economic weakness and the low risk of inflation.

But as the economy shows signs of a sustainable upturn, the risk of inflation will rise and analysts say the Fed will have to increase rates. And that will mean lower prices and higher Treasury yields, Larkin said.

Bond prices: The benchmark 10-year note was unchanged at 96-7/32, and its yield remained at 3.84% from late Thursday. The bond market was closed Friday in observance of New Year's Day.

Bond prices and yields move in opposite directions. A higher yield tends to point to increasing economic optimism and means that fewer investors are relying on the safety of bonds.

The 30-year bond fell 15/32 to 95-14/32, and its yield climbed to 4.66%.

The 2-year note edged up 2/32 to 99-26/32. Its yield was 1.10%.

The yield on the 3-month bill was 0.07%.