CREDIT : Bond Prices Edge Higher as Inflation Concerns Ease

Bond prices rose slightly Tuesday, which dealers attributed largely to a strengthened dollar and weaker commodity prices that dampened fear of inflation and tighter credit.

The Treasury’s key 30-year issue rose about 1/8 point or $1.25 per $1,000 in face amount. Its yield fell to 8.84% from 8.86% late Monday.

The market’s behavior contrasted sharply with its sharp setback in the previous session, when prices tumbled in a delayed reaction to a government report last week that showed stronger employment, suggesting economic growth would incite higher inflation and force the Federal Reserve to restrict credit.

“The fact that the bond market finished at least on the plus side today is good,” said John V. Sebastian, executive vice president and chief economist of Clayton Brown & Associates, a Chicago investment firm.

Dealers said bondholders were encouraged largely by falling oil prices, a major inflation component, as well as the dollar’s rise against foreign currencies. A strengthened dollar makes U.S. investments worth more.

In the secondary market for Treasury bonds, prices of short-term governments rose marginally; intermediate maturities rose 1/16 point, and long-term issues rose 1/8 point, according to Telerate Inc., a financial information service.

The movement of a point equals 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, rose 0.04 to 111.15. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, rose 1.0 to 1,162.92.

In corporate trading, industrials and utilities were largely unchanged to slightly higher.

Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 0.25 to 279.43.

Among tax-exempt municipal bonds, general obligations and revenue bonds were largely unchanged in light trading.

Yields on three-month Treasury bills rose 2 basis points to 6%. Six-month bills rose 4 basis points to 6.25%, and one-year bills rose 4 basis points to 6.58%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, traded at 6.81%, up from 6.75% late Monday.