Treasuries surrendered a small portion of the gains that last week dropped most yields to their lowest levels of the year, on little news and light volume.

A

coupon pass by the

Fed helped pare the losses. On a day when just $21.9 billion of Treasuries changed hands according to

GovPX

, the Fed bought $498 million of bonds maturing between 2016 and 2028. Meanwhile, the

Nasdaq fell, offsetting the potential negative impact on bond prices of a rise in commodity prices.

The benchmark 10-year Treasury note, down as much as 11/32 early in the session, ended down just 2/32 at 100 14/32, lifting its yield a basis point to 5.691%. Shorter-maturity yields were also about a basis point higher on the day.

The 30-year Treasury bond fell 4/32 to 108 8/32, lifting its yield nearly a basis point to 6.672%. And at the

Chicago Board of Trade

, the December

Treasury futures contract gained 1/32 to 100 20/32.

Maybe Treasuries were destined to succumb to a little profit-taking, after a string of much weaker-than-expected economic reports last week ignited a rally that drove most yields down to their lowest levels in a year or more.

"Treasuries are sitting at the high end of the trading range," observed Mary Ann Hurley, a trader at

D.A. Davidson

in Seattle. In order to go any higher, Hurley said, bond investors "need to see evidence that the economy may experience a hard landing." In other words, that growth may slow to an extremely slow pace, or even stop altogether, for a while. Under those conditions, bonds would presumably outperform other financial assets.

With no major economic releases slated till the

retail sales report and the

Producer and

Consumer Price Indices next week, Hurley says such a move is unlikely to come this week.

TST Recommends

In the absence of economic news, bond traders are focusing on the corporate bond issuance calendar, which typically heats up in September after slowing to a crawl in the final week of August. European telecom companies are expected to issue at least $40 billion of bonds by the end of the year to finance new wireless investments, but it is not yet clear how much will be offered during September. Large quantities of new corporate bonds can put pressure on Treasury bond prices, because investors may sell Treasuries in order to buy the new corporate bonds.

For reference, an average of $32.7 billion of investment-grade corporate and sovereign bonds have been issued per month this year, according to

IDEAglobal.com

. June was the heaviest month, with $48 billion of new bonds issued. August was among the lightest with $24.3 billion.

Corporate bond yields have risen sharply relative to Treasury yields in anticipation of the increased supply, IDEAglobal.com analyst John Atkins said. "Spreads are priced to reflect huge supply; we're just waiting to see what the supply's going to be," he said.

So far, among the major European telecom concerns, only

Telefonica

(TEF) - Get Report

has made an appearance on the horizon, slating a $5 billion issue for the second half of next week.

Currency and Commodities

The dollar fell against the yen and rose against the euro. It lately was worth 105.78 yen, down from 106.00. The euro was worth $0.8902, down from $0.8995. For more on currencies, see

TSC's

Currencies column.

Crude oil for October delivery at the

New York Mercantile Exchange

rose to $33.83 a barrel from $33.38.

The

Bridge Commodity Research Bureau Index

rose to 229.78, an 18-month high, from 228.45. The gain was broad-based, with gains of at least 1% in nine of the 17 component commodities.

Gold for December delivery at the

Comex

fell to $279.70 an ounce from $280.90.