Bonds Lose, Gain, Finally Close Lower

Bond prices were pushed and pulled by speculation over interest rates and rumors of a stock-bond swap Friday before ending the session narrowly lower.

Riggs National Bank of Washington raised its prime lending rate to 8.75% from 8.5%. Analysts said the increase came as no real surprise, given the recent rise of open-market money rates that help determine banks’ cost of funds, and no large money center banks moved to match it.

But the move was enough to jostle the bond market, which began to speculate that the Federal Reserve Board would tighten credit, thereby sending interest rates higher. When interest rates rise, bonds lose value.

However, the credit markets didn’t stay down for long.

“There was speculation that money has been moving out of equities and into bonds,” said Sun Wong Sohn, chief economist with the Minneapolis bank holding company Norwest Corp.

Bond prices rallied sharply, but then settled back as the rumors died. Analysts said there was little conviction in the market.

“The bond market is likely to mark time until more economic statistics come out,” said Marshall B. Front, an economist at the Chicago investment and mutual-fund management firm of Stein Roe & Farnham.

Indexes Mixed

Traders were looking in particular toward the Labor Department’s report on April unemployment, due out on Friday.

In the secondary market for Treasury bonds, prices of short-term governments ranged 1/32 point higher to 1/32 point lower, intermediate maturities were unchanged to 3/32 point lower and 20-year issues were off 1/16 point, according to the financial information service Telerate Inc.

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 Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 0.13 to 110.23. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, fell 0.36 to 1,151.80.

Tax-exempt municipal bonds were down 1/16 point.

Yields on three-month Treasury bills were unchanged at 5.99%. A basis point is one-hundredth of a percentage point. Six-month bills rose 1 basis point to 6.35% and one-year bills were up 2 basis points to 6.67%.

The federal funds rate, the interest on overnight loans between banks, fell to 7% from 7.063% late Thursday.