CREDIT : Bond Prices Recover From Early Losses to End Mixed

NEW YORK â€”  Bond prices finished narrowly mixed Monday, as the market overcame some early worries that had sent prices lower.

The Treasury’s 30-year bond edged up 3/32 point, or $1 for every $1,000 in face amount. Its yield slipped to 9.08% from 9.09% late Friday.

Prices moved lower in morning trading, with the 30-year issue sinking as much as $5 for every $1,000 in face value by midday.

That extended last week’s sharp decline, which had been driven by worries that the drought could trigger higher inflation and that major central banks are about to tighten credit conditions and encourage higher interest rates.

But prices retraced most of the day’s lost ground in the afternoon as the dollar moved higher against most major currencies and gold prices, which are often seen as a proxy for inflation expectations, declined.

Analysts noted that the price changes occurred in very light activity as many traders stayed on the sidelines awaiting any unexpected developments from the economic summit of the major industrial nations in Toronto.

Meanwhile, the Treasury Department sold $12.8 billion in short-term securities at higher rates than at last week’s auction.

The Treasury Department sold $6.4 billion in three-month bills at an average discount rate of 6.51%, up from 6.44% last week. Another $6.4 billion was sold in six-month bills at an average discount rate of 6.83%, up from 6.67% last week.

The three-month bill rate was the highest since May 31, when they sold for 6.53%. The six-month rate was the highest since Oct. 19, when the bills averaged 7.21%.

In the secondary market for Treasury bonds, prices of short-term government issues fell 1/32 point, intermediate maturities were down 1/16 point and 20-year issues edged up 1/32 point, according to figures provided by Telerate Inc., a business information service.

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, fell 0.01 to 109.28. The Shearson Lehman Hutton daily Treasury bond index, which makes a similar measurement, fell 0.31 to 1,143.71.

Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 0.16 to 280.83.

In the tax-exempt market, prices of municipal issues fell by about 1/8 point, according to the Bond Buyer’s municipal bond index.

Yields on three-month Treasury bills rose 3 basis points to 6.40%. Six-month bills rose 7 basis points to 6.77% and one-year bills were up 4 basis points at 7.06%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 7.5625%, up from 7.4375% late Friday.

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