CREDIT : Bond Prices Dip; Sharp Early Losses Trimmed

Most bond prices finished slightly lower Thursday after bouncing back from steeper plunges in early trading due to fears of higher inflation.

Some longer-term issues posted marginal gains. The Treasury’s closely watched 30-year issue ended 1/32 point higher, or only about 30 cents for every $1,000 in face amount, after losing as much as 1/2 point, or $5, earlier in the session. Its yield edged down to 8.72% from 8.73% late Wednesday.

William V. Sullivan, director of money market research for Dean Witter Reynolds Inc., attributed the rough start to a run-up in prices for gold and oil, often an indicator on where inflation might be heading.

Inflation is considered a key enemy for bondholders because it erodes the value of their securities, sending interest rates higher.

But the fall in bond prices was later broken by a steep plunge in the stock market, analysts said, as a number of investors switched their funds from stocks into the credit markets.

Stock prices dropped sharply as the dollar slumped in world currency markets, sending the Dow Jones index of 30 industrials down 43.77 to close at 2,023.87.

Market “Laying Low”

Bond prices “got a little bit of a kick from the stock market,” said Ward McCarthy, chief financial economist for Merrill Lynch Capital Markets.

He noted that the bond market is still “laying low,” however, waiting for next week’s scheduled meeting of the Federal Reserve’s key policy-making committee and for coming indications of the economy’s strength.

In the secondary market for Treasury bonds, prices of short-term government issues slipped 3/32 point to 5/32 point, intermediate maturities declined 1/8 point to 5/32 point and 20-year issues lost 3/16 point, according to Telerate Inc., a financial information service.

The movement of a point is equivalent to a change of $10 in the price of a $1,000 bond.

The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, slipped 0.04 to 111.81. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, stood at 1,169.23, down 0.72.

Municipals Decline

In corporate trading, industrials and utilities declined 1/8 point in very light trading, according to the investment firm Salomon Bros.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds was down 3/32 point at 87 5/8. The average yield edged up to 8.20% from 8.19% Wednesday.

Yields on three-month Treasury bills, meanwhile, declined 2 basis points to 5.81%. Six-month bills edged down 1 basis point to 6.03%, and one-year bills were unchanged at 6.39%. 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 6.675%, down from 7.50% on Wednesday.

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