CREDIT : Bonds Rise on Report Pointing to Slowdown in Inflation Rate

Bond prices rose Friday in reaction to news of a decline in wholesale prices and slower-than-expected retail spending.

The Treasury’s bellwether 30-year bond rose 21/32 point, or about $6.56 per $1,000 in face amount, as its yield fell to 8.50% from 8.55% on Thursday.

The government reports were interpreted as bullish for bond prices, said Elizabeth G. Reiners, vice president for money market research at the investment firm Dean Witter Reynolds.

The Labor Department reported that wholesale prices fell 0.2% in February, following a 0.4% rise in January. Bond traders were heartened by the slowing in inflation, Reiners said.

The bond market fears inflation because it erodes the value of fixed-income securities.

Also Friday, the Commerce Department reported retail sales rose 0.6% in February. But the department also revised its January figures to reflect a drop in consumer spending that month.

Consumer spending accounts for two-thirds of overall economic activity, so any drop-off heightens concern about a possible recession. But bond traders respond bullishly to such negative statistics because the Federal Reserve Board is considered unlikely to rein in credit by raising interest rates if the economy is sluggish.

Bond prices and interest rates move in opposite directions, so lower interest rates mean bonds would be worth more.

Partially offsetting the favorable news from the government was an increase in oil prices and a small decline in the value of the dollar.

In the secondary market for Treasury bonds, prices of short-term government issues ranged 1/16 point to 3/32 point higher, intermediate maturities rose between 5/32 point and 13/32 point and 20-year issues rose 23/32 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 Shearson Lehman daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 2.39 to 1,181.83.

In corporate trading, industrial and utility issues rose 1/2 point in moderate trading, according to the investment firm Salomon Bros.

In the municipal bond market, the bond buyer index of 40 actively traded general obligation and revenue bonds rose 5/32 point to 89 9/16. The average yield fell to 8.04% from 8.06%.

Yields on three-month Treasury bills fell 1 basis point to 5.73%. Six-month bills fell 1 basis point to 5.83% and one-year bills dropped 5 basis points to 6.24%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 6.563%, unchanged from Thursday.