CREDIT : Bond Prices Tumble on Fears of Renewed Inflation

Bond prices tumbled Monday as a big rise on commodity futures prices sparked some new worries about inflation.

The Treasury’s 30-year bond fell 1 points, or $12.50 per $1,000 face amount as its yield climbed to 8.96% from 8.85% late Friday.

Bond prices moved lower from the start following a drop in U.S. bond prices overseas. The decline occurred despite a rise in the dollar in foreign exchange trading, which had led bonds to a big advance last week.

Kevin Flanagan, money market economist for Dean Witter Reynolds Inc., said traders were troubled by a 5.34-point rise in the Commodity Research Bureau’s index of selected commodity futures prices.

It was the biggest rise in the CRB index since a 5.50-point advance on May 31. Traders often view sharp rises in the index as a signal that inflation could be ready to accelerate, eroding the value of bonds.

He said the market was also worried that the Federal Reserve may be about to tighten credit conditions, driving interest rates higher.

The decline may also have reflected some profit taking in the wake of last week’s advance, which sent 30-year Treasury prices up about $25 for every $1,000 in face value for the week.

But Flanagan also noted that the latest fall in bond prices occurred in relatively light trading.

Meanwhile, the Treasury sold $12.8 billion in short-term securities with rates on three-month bills rising to the highest level since October and rates on six-month bills edging lower.

The Treasury Department sold $6.4 billion in three-month bills at an average discount rate of 6.59%, up from 6.51% last week. Another $6.4 billion was sold in six-month bills at an average discount rate of 6.75%, down from 6.83% last week.

The rate on three-month bills was the highest since an average of 6.84% last Oct. 19. The rate on six-month bills was the lowest since they sold for 6.67% two weeks ago.

In the secondary market for Treasury bonds, prices of short-term governments declined 6/32 point, intermediate maturities fell between 10/32 point and 26/32 point and 20-year issues fell nearly a full point, according to figures provided by Telerate Inc., a business-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 0.57 to 109.61. The Shearson Lehman Hutton daily Treasury bond index, which makes a similar measurement, stood at 1,147.43, down 5.76.

Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, fell 0.69 to 283.50.

In the tax-exempt market, prices were generally off about 1/8 point, according to the bond buyer municipal bond index.

Yields on three-month Treasury bills were up 8 basis points to 6.57%. Six-month bills rose 7 basis points to 6.83% and one-year bills rose 8 basis points at 7.05%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, traded at 7.5625%, unchanged from late Friday.

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