CREDIT : Interest Rate Concerns Push Bonds Lower

A positive economic report proved bearish for the bond market Tuesday, sending prices of Treasury issues sharply lower.

The Commerce Department said orders for big-ticket durable goods, items expected to last three years or longer, soared 6.7% during December.

The news caused the Treasury’s bellwether 30-year issue, which rose during the four previous sessions, to fall 29/32 point, or about $9 per $1,000 face amount. Its yield, which moves inversely to its price, rose to 8.71% from 8.62% late Monday.

The government report also fueled market sentiment that gross national product figures scheduled for release today would be better than expected, said Elizabeth G. Reiners, a vice president for money market research at Dean Witter Reynolds Inc.

Interest Rate Fears

Credit markets often worry that a strong economy could lead to a hike in interest rates, thereby lowering the value of existing bonds.

Maria F. Ramirez, a managing director at Drexel Burnham Lambert Inc., said the market also sold off in advance of today’s expected announcement of the size of next month’s Treasury refunding auction. Bonds usually slip right before a refunding announcement.

In the secondary market for Treasury bonds, prices of short-term governments declined between 3/32 point and 5/32 point, intermediate maturities fell from 5/16 point to 9/16 point and 20-year issues were down 13/16 point, according to figures provided by the financial information service Telerate Inc.

In corporate trading, industrials were off 1/2 point and utilities fell 3/8 point in moderate trading, according to Salomon Bros.

Among tax-exempt municipal bonds, general obligations fell 1 1/2 points and revenue bonds were down 5/8 point, according to the securities firm Merrill Lynch & Co. Trading was moderate.

The federal funds rate, the interest on overnight loans between banks, traded at 6.688%, down from 6.938% late Monday.

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