CREDIT : Bond Prices Edge Higher as Oil, Commodities Drop

NEW YORK — Bond prices drifted higher in a quiet session Tuesday after trading in a narrow range most of the day.

The Treasury’s bellwether 30-year bond was up point, or about $2.50 for every $1,000 in face amount. Its yield slipped to 9.20% from 9.23% late Monday.

Bond prices edged up early in the day on news that oil prices had declined, but the market quickly lost momentum, analysts said.

“Nothing gave it much oomph today,” said Elizabeth Ginste Reiners, an analyst with Dean Witter Reynolds Inc. in New York. “It traded in a very narrow range.”

Marshall B. Front, an economist at the Chicago investment firm of Stein Roe & Farnham, said declining oil and commodity prices, coupled with a weaker dollar, gave the market an early boost.

“Two positive factors were the weakening of commodity prices and the partial reversal of (Monday’s) rise in energy prices,” Front said. “Against that, the dollar was weaker reflecting central bank intervention rather than a change in outlook for the dollar.”

Inflation Worries Subside

Analysts said Monday’s surge in oil prices was triggered by the announcement of a possible peace initiative between Iran and Iraq. They said such a move could mean a lowering of production limits and an increase in oil prices if the two warring countries and other nations in the region agree.

As oil prices declined early Tuesday on news that fighting continued in the region, investor worries about inflation subsided.

Inflation, which erodes the value of fixed-income securities such as bonds and notes, could rise if oil prices increase. Bond investors also fear that higher inflation could prompt the Federal Reserve to tighten credit and encourage higher interest rates, depressing bond prices.

Also contributing to the rise in bond prices early in the day was a further weakening of the dollar and a continuing slide in grain prices, analysts said.

“Agricultural prices are sharply lower after the inevitable finally happened--rain,” Front said.

In the secondary market for Treasury bonds, prices of short-term government issues rose about 1/8 point, intermediate maturities rose by between 1/8 point and 9/32 point and 20-year issues climbed 9/32 point, according to Telerate Inc., a financial information service.

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

The Shearson Lehman daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, was up 2.12 to 1,137.49.

Moody’s investment-grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, was up 0.54 to 281.88.

Tax-exempt municipal bonds were up 1/8 point. Trading was light.

Three-month Treasury bills were down 8 basis points to a discounted rate of 6.67% and a yield of 6.87%. Six-month bills were down 3 basis points to a discounted rate of 7.05% and a yield of 7.40%, and one-year bills were down 6 basis points at 7.21% to yield 7.71%.

A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discounted rate is the interest rate the market uses to price bills.

The federal funds rate, the interest on overnight loans between banks, was quoted at 7.688%, down from 7.875% late Monday.

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