CREDIT : Concerns About Bond Market Glut Sends Prices Downward

Most bond prices finished slightly lower Tuesday, dragged down by mixed signals about the economy and worries about a possible glut of bonds.

The Treasury’s closely watched 30-year bond fell 3/16 point, or $1.87 for every $1,000 in face value. Its yield, which moves inversely to its price and is often an indicator of interest rate trends, rose to 9.18% from 9.16% late Monday.

Analysts said traders had a mixed reaction to the government’s report that durable goods orders rose sharply in June. Traders also worried about an increased supply of bonds later this summer, after progress was reported in Washington on legislation that would permit the Treasury to issue new 30-year bonds in August.

The Commerce Department reported that orders for big-ticket durable goods surged 8.8% in June, due mainly to a jump in aircraft orders. Excluding the gain in the transportation sector, total orders would have risen only 0.1%.

Effect of Commodities

Economists say a big rise in durable goods orders may indicate a strong economy, which could rekindle inflation fears and lead to higher interest rates. But they say the outlook is not as clear if the surge in durable goods orders can be traced to an extraordinary increase in one type of orders.

Analysts said the decline in bond prices was slowed, however, by a second straight day of sharp drops in prices of farm commodities. Most crop futures prices plunged their permitted daily limits on the Chicago Board of Trade following forecasts for more rain in the Midwest and reports that recent showers had helped the crops.

In the secondary market for Treasury bonds, prices of short-term government issues were unchanged to 1/32 point lower, intermediate maturities declined 1/16 point to 3/32 point and 20-year issues rose 3/16 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 Shearson Lehman daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, was down 0.79 at 1,137.98.

Discounted Rates Rise

Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, edged up 0.05 to 282.51.

Three-month Treasury bills, meanwhile, rose 4 basis points to a discounted rate of 6.91% and a yield of 7.12%. Six-month bills edged up 1 basis point to a discounted rate of 7.09% and a yield of 7.44%, while one-year bills rose 3 basis points to 7.27% to yield 7.77%.

A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discounted rate is the interest rate the market uses to price bills.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 7.75%, down from 7.813% late Monday.

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