CREDIT : Bonds Finish Steady Despite Early Declines

Bond prices finished little changed Thursday after recovering from sharply lower levels in thin trading.

The Treasury’s closely watched 30-year bond, which had been off nearly a point earlier in the session, was off 1/16 point, or less than $1 per $1,000 in face amount as trading drew to a close.

The yield on the 30-year issue, which is often an indicator of interest rate trends, rose to 9% from 8.98% late Wednesday.

Analysts said the credit markets initially reacted to several bits of negative information, including sharply higher oil prices following a rig explosion in the oil-rich North Sea and a further weakening of the dollar.

Both a weaker U.S. currency and higher oil prices raise concerns about inflation, which erodes the value of fixed-income securities. A weaker dollar also makes dollar-denominated bonds and notes less attractive to foreign investors.

Waiting for Indicator

“The market is very quiet, so moves tend to be exaggerated, and this happens to be on the downside,” said Mitchell Held, chief financial economist at Smith Barney, Harris Upham & Co., explaining the drop in bond prices at midday.

But oil prices fell back and the dollar finished mostly higher in domestic dealings, giving bonds modest support to recover from their lowest levels.

Traders are awaiting the Labor Department’s release today of unemployment data for June. Elizabeth Reiners, a vice president at Dean Witter Reynolds Inc., noted that the report is important to the credit market “not only because it reflects activity of the labor force, but it gives us earnings data and a lot of other forecasting data.”

Held noted that the market “hasn’t had a big indicator (to react to) in several weeks.” He also said there may be some positioning before next week’s report on the nation’s merchandise trade deficit.

In the secondary market for Treasury bonds, prices of short-term government issues declined 3/32 point, intermediate maturities lost 1/16 point to 5/32 point, and 20-year issues fell 7/32 point, according to Telerate Inc., a business information service.

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

T-Bill Yields Rise

The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.11 to 109.50. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, fell 1.89 to 1,144.92.

In the tax-exempt market, prices fell point, according to the Bond Buyer municipal bond index.

Yields on three-month Treasury bills, meanwhile, rose 2 basis points to 6.54%. Six-month bills rose 5 basis points to 6.73%, and one-year bills rose 3 basis points to 7.08%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, was quoted at 7.563%, unchanged from late Wednesday.

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