CREDIT : Bond Prices Head Lower as Inflation Jitters Rise

Interest rates pushed higher Friday and bond prices fell as inflation worries depressed the market, despite a new government report that consumer prices rose only modestly in April.

The Treasury’s bellwether 30-year bond fell 5/8 point, or about $6.25 for every $1,000 in face value. Its yield rose to 9.34%, the highest since it stood at 9.4% in mid-December and up from 9.27% late Thursday.

As trading got under way, the government said consumer prices rose 0.4% in April, compared to a 0.5% rise in March.

The size of the increase had been widely expected, however, and the report failed to inspire the market, which is often cheered by news of moderate inflation. Bond traders are taking a longer view, analysts said.

“People are still concerned about the rate of growth in the economy and the potential for inflation to accelerate,” said Harold Nathan, senior financial economist at Wells Fargo & Co.

He said the market as a whole is “in a bad mood, expecting higher rates and you can’t get anyone to buy bonds.”

Late in the afternoon, the Federal Reserve released minutes of its March 29 policy-making meeting at which the Federal Open Market Committee voted 10 to 1 to tighten its credit policy, pushing interest rates higher to head off inflation.

But Nathan said the report had no impact on bond prices, as the market has long suspected a tightening move occurred at that meeting seven weeks ago.

The Fed’s policy makers met again this past week, but the central bank will not publish the minutes of that session for about six weeks.

In the secondary market for Treasury bonds, prices of short-term governments fell 3/32 point, intermediate maturities fell point and 20-year issues tumbled 9/16 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 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, fell 0.27 to 108.48. The Shearson Lehman Hutton daily Treasury bond index, which makes a similar measurement, fell 3.17 to 1,134.89.

Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, fell 0.51 to 274.13.

In the tax-exempt market, the Bond Buyers municipal bond index fell 1/16 point while its yield to maturity held steady at 8.24%.

Yields on three-month Treasury bills rose 14 basis points to 6.28%. Six-month bills rose 7 basis points to 6.62% and one-year bills rose 9 basis points to 7.00%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, traded at 7.25%, up from 6.938% on Thursday.

Tables, Page 10