CREDIT : Bond Prices Depressed by Profit Taking

Profit taking and a report showing a wider Japanese trade surplus with the United States kept bond prices lower Tuesday in a fairly narrow trading range.

The Treasury’s bellwether 30-year bond, which on Friday soared 2 5/8 points, or $26.25 per $1,000 face amount, closed down $3.75. Its yield rose to 8.80% from 8.75%.

Most bond markets were closed Monday in observance of Martin Luther King Jr.’s birthday.

William V. Sullivan, director money market research for Dean Witter Reynolds Inc., attributed some of Tuesday’s slump to profit taking following Friday’s sharp rally.

The credit markets were boosted by government reports showing inflation under control and a U.S. trade deficit narrowing to $13.2 billion in November from a record $17.6 billion in October.

But the trade news wasn’t as good Tuesday. The Japanese government reported that Japan’s trade surplus with the United States climbed to $4.9 billion last month, up from $4.7 billion in December, 1986, and $4.2 billion in November.

The dollar was lower against most key currencies as a result of that report, and that also helped depress bond prices.

A widening shortfall puts pressure on the dollar. And when the currency declines, it discourages foreigners from buying U.S. securities and raises prospects for inflation, which erodes the value of fixed-income securities.

Treasury Bonds Ease

In the secondary market for Treasury bonds, prices of short-term governments fell 3/32 point; intermediate maturities lost between 1/32 point and 9/32 point, and 20-year issues were down 7/16 point, according to Telerate Inc., a financial reporting 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 0.15 to 111.39. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, declined 2.34 to 1,164.97.

In corporate trading, industrials and utilities lost about point in moderate trading, according to the investment firm of Salomon Bros.

Yields on three-month Treasury bills were up 8 basis points to 5.94%. Six-month bills rose 8 basis points to 6.32%, and one-year bills were up 2 basis points at 6.53%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, traded at 6.875%, down from 6.938% late Friday.

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