CREDIT : Rise in Interest Rates Hurts Bond Prices : Pattern Repeats; New Inflation Fears Cited

NEW YORK — Bond prices tumbled and interest rates jumped Friday for the second consecutive session as new worries emerged about inflation.

The Treasury’s closely watched 30-year bond fell 5/8 point, or $6.25 for every $1,000 in face value. Its yield, which moves inversely to its price, climbed to 8.94% from 8.86% late Thursday.

The 30-year bond dropped about $10 for every $1,000 in face value moments after the government reported wholesale prices jumped 0.6% in March--the biggest increase in 11 months.

But prices later recovered as buyers appeared when yields on the longest issues edged closer to 9%, a height last touched in January.

The latest price decline came on the heels of Thursday’s sharp slide in stock and bond prices sparked by news of an unexpected widening in the U.S. trade deficit.

‘Catered to Fears’

Most analysts had been looking for a more moderate gain in wholesale prices than the 0.6% rise reported by the government.

“It catered to the market’s recent fears about whether the economy is expanding too rapidly and is facing demand pressures and bottlenecks that would tend to move prices higher,” said William V. Sullivan Jr., director of money market research for the investment firm Dean Witter Reynolds Inc.

Inflation erodes the value of fixed-income securities and increases the chances that the Federal Reserve Board will encourage higher interest rates to curb rising prices.

In the secondary market for Treasury bonds, prices of short-term issues fell 1/8 point, intermediates lost 5/16 point and 20-year governments fell 3/4 point, according to the financial information service Telerate Inc.

The federal funds rate, the interest on overnight loans between banks, was quoted at 6.75%, up from 6.688% late Thursday.

In the tax-exempt market, the bond buyers municipal bond index of 40 long-term bonds fell 11/32 point to 87 18/32 while its yield rose to 8.21% from 8.17%.

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