CREDIT : Bond Prices Fall Sharply in Wake of Jobless Report

Bond prices tumbled Monday and interest rates leaped as the U.S. credit market got its first chance to respond to last week’s report on March unemployment.

The Treasury’s closely watched 30-year bond fell 1 points, or $12.50 for every $1,000 in face value. Its yield, which moves inversely to its price, had soared to 8.86% from 8.75% late Thursday.

The credit markets were closed Friday in observance of the Good Friday and Passover holidays.

Analysts said bond traders saw the government’s latest unemployment report as evidence that the economy may be heating up and inflation may accelerate.

The Labor Department said last Friday that the U.S. unemployment fell to 5.6% in March, while non-farm payroll employment rose by a larger-than-expected 262,000 jobs.

Bond investors took the news as a cue to sell bonds because resilience in the economy could signal a resurgence of inflation, which erodes bond values.

William V. Sullivan Jr., director of money market research for the investment firm Dean Witter Reynolds, said the report also “dims any prospects of Fed easing or lower interest rates in the near term.”

If the economy bounces too strongly, the Federal Reserve could put a lid on expansion by raising interest rates, which would push bond prices lower.

Meanwhile, the Treasury Department auctioned $12.8 billion in short-term securities at the highest rates since mid-January.

The government sold $6.4 billion in three-month bills at an average discount rate of 5.98%, up from 5.69% last week. Another $6.4 billion was sold in six-month bills at an average discount rate of 6.21%, up from 6% last week.

The rates were the highest since Jan. 19 when three-month bills sold for an identical 5.98% and six-month bills averaged 6.37%.

In a separate report, the Federal Reserve said Monday that the average yield for one-year Treasury bills, the most popular index for making changes in adjustable-rate mortgages was 6.78% last week, up from 6.77% the previous week.

In the secondary market for Treasury bonds, prices of short-term government issues fell 3/8 point from last Thursday, intermediate maturities dropped 18/32 point to 3/4 point, and long-term issues tumbled 25/32 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 outstanding Treasury issues with maturities of a year or longer, had tumbled 6.66 to 1,161.92. The Merrill Lynch composite index, which makes a similar measurement, fell 0.62 to 111.10.

Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, lost 1.86 at 279.18.

Yields on three-month Treasury bills, meanwhile, jumped 13 basis points to 5.85%. Six-month bills had soared 19 basis points to 6.22% and one-year bills leaped 18 basis points to 6.54%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, was quoted at 6.68%, down from 6.75% late Thursday.