CREDIT : Long-Term Bonds Battered as Heavy Selling Wave Continues

The credit markets ended a week of fierce selling Friday with another decline in bond prices, although longer-maturing issues sustained the biggest losses. Short-term interest rates barely budged.

The Treasury’s bellwether 30-year issue, which on Thursday plunged nearly 2 points, or $20 per $1,000 in face amount, lost about $6.25 by late Friday. Its yield, which moves inversely to its price, jumped to 9.45% from 9.39% late Thursday.

Corporate and municipal bonds also fell.

The price slump came in thin trading and despite the release of two otherwise bullish reports on inflation and the economy.

William V. Sullivan, an economist for Dean Witter Reynolds, said investors were still bothered by Thursday’s report on October trade--which showed the U.S. deficit swelling to a record $17.6 billion--and what that might mean for the wobbly dollar.

The dollar sank to record lows in foreign exchange trading after the data were released Thursday and eased a bit on Friday.

Bondholders are concerned, analysts say, that the dollar may continue to fall in light of the weak trade picture, and that the Federal Reserve may feel compelled to raise interest rates to shore up the currency.

A weaker dollar also puts pressure on inflation, which erodes the value of fixed-income securities. And it lessens the attractiveness of dollar-denominated bonds and notes to foreign investors.

Analysts say bond prices might have fallen even further Friday had it not been for two government reports showing weak economic growth and low inflation--the right equation for the credit markets.

The government said retail sales rose modestly in November while wholesale prices held steady that month.

“Both (reports) were favorable, but they were not enough to offset the damage that was done yesterday from the trade deficit report and the hit the dollar took as a consequence,” explained Nancy Vanden Houten, a money-market economist for Merrill Lynch Capital Markets.

In the secondary market for Treasury bonds, prices of short-term governments fell around 1/16 point, intermediate maturities ranged from 1/8 point to 1/2 point lower and 20-year issues were down about 5/8 point, according to figures provided by Telerate Inc., a financial 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 0.30 to 108.37. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, declined 3.20 to 1,134.06.

In corporate trading, industrials fell 3/4 point and utilities declined 3/8 point in light trading, according to the investment firm of Salomon Bros.

In municipal trading, most actively traded revenue bonds and general obligation bonds declined about 5/8 point in moderate trading, according to Merrill Lynch.

Yields on three-month Treasury bills were up 3 basis points to 5.89%. Six-month bills rose 4 basis points to 6.48% and one-year bills were up 4 basis points at 6.79%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, traded late in the day at 6.75%, down from 6.813% late Thursday.

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