A drop in commodity prices and a report of sluggish consumer borrowing helped the bond market to rally Thursday from a depressed opening.
The renewed strength helped push interest rates on long-term bonds back below 9% after a morning rise above that figure.
The Treasury's key 30-year bond rose 1/2 point, or $5 for every $1,000 in face value, by around midday. Its yield, which moves inversely to its price, fell to 8.94% from 8.99% Wednesday.
Traders said a slight retreat in commodity prices as measured by the Commodity Research Bureau index helped ease fears of a resurgence of inflation. Inflation is the main enemy of the bond market, since it erodes the value of fixed-income investments.
Bond investors also were cheered by a Federal Reserve report that consumer installment credit rose a modest $2.22 billion in November. That indicated that consumers had cooled their borrowing in the first full month after the October stock market crash.
The bond market shrugged off worries that a fairly healthy Christmas shopping season indicated potential inflationary pressures. Monroe H. Greenstein, an analyst with Bear, Stearns & Co., estimated that retail sales were up more than 6% from December, 1986.
Prices also were unaffected by the Federal Reserve report that the nation's basic money supply, M1, was unchanged in the most recent reporting period.
In the secondary market for Treasury bonds, prices of short-term government issues were 1/8 to 3/32 point higher; intermediate maturities rose 5/32 to 3/16 point, and long bonds rose 1/2 point, according to Telerate Inc.
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 Shearson Lehman daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 2.44 to 1,156.29.
In the corporate bond market, industrials were up about point and utilities were up about 3/8 point in moderate trading, Salomon Bros. said.
In municipal bond trading, Merrill Lynch & Co. said general obligation and revenue bonds fell about 1/2 point.
Yields on three-month Treasury bills, meanwhile, declined 2 basis points to 5.83%. Six-month bills slipped 1 basis point to 6.36% and one-year bills were unchanged at 6.68%.
The federal funds rate, the interest on overnight loans between banks, was quoted at 6.875, unchanged from Wednesday.