CREDIT : Bonds Benefit From Stock Losses

NEW YORK —  Bond prices rose and rates on short-term Treasury issues tumbled Friday as stock prices tumbled for a second consecutive session.

The Treasury’s 30-year bond rose 18/32 point, or about $5.50 per $1,000 face amount, while its yield fell to 8.68% from 8.72% Thursday.

On Wall Street, the Dow Jones index of 30 industrials fell 44.92 points to close at 1,978.95, after a 43.77-point decline the previous session.

The slide in stock prices helped the bond market by driving some investors to lock in current yields on fixed-income securities, according to David Hale, chief economist for Kemper Financial Services in Chicago.

He said people who already hold bonds often view declines in the stock market as an indication that the economy could weaken.

In that type of environment, he said, chances are slim that the Federal Reserve would tighten credit conditions, driving interest rates higher.

The decline in rates was most pronounced in shorter-maturity issues as yields on three-month bills fell 11 basis points to 5.70%, while six-month bills fell 9 basis points to 5.94% and one-year bills fell 7 basis points to 6.31%. A basis point is one-hundredth of a percent.

In the secondary market for Treasury bonds, prices of short-term governments rose 6/32 point, intermediate maturities climbed 10/32 point and 20-year issues rose 14/32 point, according to figures provided by Telerate Inc.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 0.31 to 112.12. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, rose 3.81 to 1,173.04.

In corporate trading, industrials and utilities rose point in light trading, according to the investment firm of Salomon Bros.

The federal funds rate, the interest on overnight loans between banks, traded at 6.50%, down from 6.675% Thursday.

In the tax-exempt market, the bond buyers municipal bond index, which measures price changes on 40 long-term bonds, rose 11/32 to 86 31/32 to yield 8.16%, down from 8.20% on Thursday.