CREDIT : Bond Prices Continue Downward Trend

NEW YORK —  Bond prices fell modestly Monday in a continuation of the decline of last week.

The Treasury’s closely watched 30-year bond fell 3/8 point, or about $3.75 for every $1,000 in face value. Its yield rose to 9.06% from 9.04% late Friday.

Bond prices had dropped sharply last Thursday over fears about the budget deficit and dissatisfaction with the outcome of the Treasury’s quarterly bond auction.

Prices continued to fall Friday after the government reported that wholesale prices shot up faster than expected last month.

The inflation report has reignited the belief that the Federal Reserve will push interest rates higher in a bid to slow the economy and curb inflation. Higher rates on newly issued securities undermine the value of existing fixed-income securities that were issued at lower rates.

On Monday, the dollar declined in late trading, contributing to the weakness in the bond market.

Bond traders were awaiting the release of government economic reports later in the week, notably retail sales for January today and business inventories for December on Wednesday.

“After the selloff that we had last week, people are looking for some longer-term values. There is still a lot of money in the system,” said Maria Ramirez, managing director at Drexel Burnham Lambert.

Federal Funds Rate Higher

In the secondary market for Treasury bonds, prices of short-term government issues fell between 1/32 point and 1/16 point, intermediate maturities declined between 1/16 point and 7/32 point and long-term issues lost 7/32 point to 3/8 point, according to Telerate, a financial data service.

The movement of a point equals a change of $10 in the price of a $1,000 bond.

The Shearson Lehman Hutton daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, slipped 1.16 to 1,126.63.

In corporate trading, industrials also declined. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, was down 1.13 at 297.39.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds fell 11/32 point to 90.875. The average yield to maturity rose to 7.69% from 7.65% late Friday.

Yields on three-month Treasury bills fell to 8.84% as the discount slipped 1 basis points to 8.55%. Yields on six-month bills rose to 9.06% as the discount rose to 8.57%. Yields on one-year bills rose to 9.24% as the discount increased 4 basis points to 8.57%.

A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discount is the percentage that bills are selling below the face value, which is paid at maturity.

The federal funds rate, the interest on overnight loans between banks, was quoted at 9.25%, up from 9.0625% late Friday.

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