CREDIT : Bonds Steady as Traders Find Little Encouragement

Government bond prices continued to stagnate Thursday as traders became more cynical over Washington’s lack of progress in cutting the federal budget deficit.

Prices were little changed from Wednesday’s session. The bellwether 30-year Treasury bond rose 1/32 point, or about 30 cents for every $1,000 in face value. Its yield was 8.92%, unchanged from late Wednesday.

Activity in the credit markets has been at a virtual standstill throughout the week as traders scrutinized the budget wrangling between the White House and Congress.

Credit market analysts say they are more interested in the immediate effect an agreement will have on the dollar and the reaction of financial leaders in other countries.

“A lot is hinging on this,” said Nancy Vanden Houten, a money market economist at Merrill Lynch & Co.

Market watchers said increasing skepticism over the talks already has weakened the dollar, which in turn could depress bond prices once negotiators unveiled their plans. A lower dollar makes dollar-denominated securities less attractive to foreign investors.

Analysts say the markets are concerned that failure to eliminate more than the minimum amount mandated by Gramm-Rudman could mean a continuing heavy supply of federal debt securities in the credit markets, which would dampen bond prices and push rates higher.

Prices of short-term issues were 3/32 point higher; intermediate maturities were 3/32 point to 1/8 point higher, and 20-year issues rose 7/32 point, according to Telerate Inc.

Yields on three-month Treasury bills were down 14 basis points to 5.63%. Six-month bills fell 8 basis points to 6.17%, and one-year bills were off 3 basis points at 6.50%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, traded at 6.813%.