CREDIT : Bond Rally Early in Session Fizzles in Midday Trading

Bond prices finished little changed Thursday as an early rally ran out of steam in the afternoon.

The Treasury’s 30-year bond, widely followed as an indicator of trends in the credit markets, finished down 1/32 point, or less than $1 for every $1,000 in face value, as its yield rose to 8.92% from 8.91% late Wednesday.

Prices were up $5 at midday following Wednesday’s rise of about $18.

Bonds got an early push from another advance in the dollar in foreign exchange trading. The dollar’s sharp rise over the past two days has attracted some foreign investment into the bond market, analysts said.

As the dollar rises against other major currencies, the potential value of foreign investments in dollar-denominated securities such as U.S. bonds also rises.

Also contributing to the rise in bond prices was the government’s latest estimate that the economy grew at a 3.6% rate in the first three months of this year, down from an estimate a month ago of 3.9% growth.

But prices fell in light dealings in the afternoon as the dollar backed off its highs reached overseas earlier in the day.

“The market seems very confused,” said Steven A. Wood, economist for BankAmerica in San Francisco. “After having spent three years watching the dollar decline and hearing it has to go lower, traders are asking themselves , ‘Do I believe the dollar where it is?’ ”

Analysts Disagree

Wood said he thought bond yields will rise, reaching 10% by the end of the year. “The economic fundamentals suggest that rates have to move higher. The economy is growing at pretty good clip,” he said.

But Elliott Platt, research director at the investment firm Donaldson Lufkin & Jenrette Securities Corp., said rates are headed lower.

He said he expects that the economy will slow over the next few months, enabling long-term interest rates to fall into the 8% to 8.25% range by the end of the year.

Meanwhile, the Treasury sold $6.75 billion in four-year notes at the highest yields for such an auction since before the October stock market crash.

The average yield was 8.36%, up from 7.90% at the last auction on March 24 and the highest since 9.24% on Oct. 6.

In the secondary market for Treasury bonds, prices of short-term government issues fell 1/8 point, intermediate maturities were down 3/16 point and 20-year issues fell 1/16 point, according to Telerate Inc., a financial information services firm.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

Municipals Rise

The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.05 at 109.94. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, fell 1.02 to 1,150.18.

Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, was up 0.38 to 283.59.

In the tax-exempt market, prices rose 1/8 point, according to the Bond Buyer municipal bond index.

Yields on three-month Treasury bills rose 2 basis points to 6.53%, while six-month bills fell 1 basis point to 6.77% and one-year bills rose 2 basis points to 7.01%. A basis point is one hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 7.5625%, up from 7.4375% late Wednesday.

Tables, Page 14