Bond prices fell a bit on light volume, with short-maturity issues underperforming long-maturity ones. A combination of factors was responsible. Relative calm in the Middle East simultaneously eroded the flight-to-quality bid for short-term Treasuries, and guided oil prices lower, which benefits long-term Treasuries the most.

Also, the supply dynamics in the Treasury market this week and next favor long-maturity issues and challenge short-maturity ones. The Treasury Department will conduct

buybacks of long-maturity issues this week and next. And its next monthly auction of two-year notes will be announced this week and will go off next week.

There was no major economic news, and a

speech by

Fed Chairman

Alan Greenspan did not comment on the economy or monetary policy. So volume was light, with just $18.1 billion of Treasuries changing hands through 3 p.m. EDT, 31.8% below average for a Monday over the past month, according to tracker

GovPX.

The benchmark 10-year

Treasury note finished down 1/32 at 100 3/32, lifting its yield a fraction of a basis point to 5.736%. Shorter-maturity issues fared worse, their yields rising by 1 to 4 basis points.

The 30-year

Treasury bond fell 3/32 to 106 2/32, lifting its yield a fraction of a basis points to 5.817%.

At the

Chicago Board of Trade

, the December

Treasury futures contract fell 5/32 to 99 11/32.

The price action in Treasuries today was primarily concerned with the difference between short- and long-maturity yields, rather than with the direction of interest rates,

Paribas Capital Markets

senior bond strategist Richard Gilhooly said.

On Friday, he said, some bond investors simultaneously bought short-term Treasuries and sold long-term ones as insurance against the possibility that there would be another eruption of violence in the Middle East. That presumably would have stoked demand for short-term Treasuries, which are the quintessential safe-haven investment.

At the same time, it probably would have sent oil prices higher. Rising oil prices punish long-maturity bond prices disproportionately, because they are most sensitive to threats of rising inflation.

When a fresh crisis didn't materialize, people unwound the bets they had placed on Friday, Gilhooly said. "The insurance that was taken out Friday was sold this morning." That caused short-term Treasury yields to rise relative to long-maturity ones, which while they rose, rose less.

In the absence of a flare-up in the Middle East, short-term Treasury yields should continue to rise relative to long-term ones based on supply dynamics, Gilhooly said. Next week's auction of new two-year notes should keep pressure on the prices of short-maturity issues, while buybacks, which will probably continue to target long-maturity issues, will provide some support for those prices.

Meanwhile, Treasury investors are keeping an eye on the corporate bond market, where new issuance is expected to be heavy this week in spite of widening

TheStreet Recommends

credit spreads. Led by

Unilever

(UN) - Get Report

, which plans to sell $7 billion of new bonds, new

investment-grade corporate issuance is expected to total at least $8.5 billion this week, compared to a year-to-date average of $7.5 billion, according to

IDEAglobal.com

. Heavy corporate bond issuance can prompt selling of Treasuries by underwriters, investors or both.

Economic Indicators

Business inventories

(

definition |

chart |

source

) rose 0.7% in August after a 0.4% increase in July. Retailers are thought to be optimistic about the coming holiday season and are stocking up in expectation of healthy sales. Sales rose 0.5% in August, after a 0.6% decline in July.

Currency and Commodities

The dollar closed higher against the yen and the euro. It lately was worth 108.02 yen, up from 107.83. The euro was worth $0.8506, down from $0.8560. For more on currencies, see

TSC's

Currencies column.

Crude oil for November delivery at the

New York Mercantile Exchange

fell to $32.92 a barrel from $34.99.

The

Bridge Commodity Research Bureau Index

fell to 229.69 from 230.85.

Gold for December delivery at the

Comex

fell to $273.9 an ounce from $274.80.