CREDIT : Bonds Finish Mixed on Fears of Oversupply

Bonds were mixed Wednesday in moderate trading after early gains in which investors responded favorably to Federal Reserve Board Chairman Alan Greenspan’s renewed pledge to tighten credit to keep inflation under control.

However, the market lost ground late in the day as commodity prices rose. In addition to their nagging inflation fears, bond traders also worried about a burgeoning supply of bonds later this summer.

William Sullivan, director of money market research for Dean Witter Reynolds Inc., cited proposals aired in Washington that would permit the U.S. Treasury to issue new 30-year bonds in August.

“Earlier, there was no chance of more bonds at refunding,” Sullivan said. “Now there could be more supply coming on in August.”

The Treasury’s bellwether 30-year bond fell 11/32 point, or about $3.40 for every $1,000 in face amount. Its yield rose to 9.17% from 9.13% late Tuesday.

Price Pressures

Meanwhile, shorter-term issues finished on the plus side.

Early in the day, investors reacted positively to Greenspan’s report to the Senate Banking Committee that the Federal Reserve would continue to follow tight monetary policies and hold the dollar steady, said Mitchell Held, chief financial economist for Smith Barney, Harris, Upham & Co.

Worries about inflation intensified last week when the Labor Department announced the lowest civilian unemployment rate in 14 years as well as strong gains in employment.

Greenspan also warned of growing signs of price pressures stemming from other factors such as the drought and high industry operating rates.

Investors also remained cautious as they awaited Friday’s report from the Commerce Department on the trade deficit for May, Sullivan said.

Analysts say that if the trade deficit widens too much, it would hurt the dollar and lead to further declines in bond prices.

“The downturns last Friday and this week are in anticipation of (unfavorable) reports,” Sullivan said.

Utilities Fall

In April, the merchandise trade deficit narrowed to $9.9 billion, its best showing in three years.

In the secondary market for Treasury bonds, prices of short-term governments were unchanged to 1/32 point higher, intermediate maturities were up by between 1/32 point and 1/16 point and 20-year issues rose 3/16 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 $1,000 bond.

The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.09 to 108.69. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, was down 0.82 to 1,137.50.

In corporate trading, industrials and utilities each fell 1/8 point in moderate activity, according to the investment firm Salomon Bros.

Three-month Treasury bills fell 3 basis points to a discount rate of 6.72%. Six-month bills dropped 1 basis point to 6.96%, while one-year bills were off 2 basis points to 7.22%.

The federal funds rate, the interest on overnight loans between banks, traded at 7.50%, up from 7.375% late Tuesday.