CREDIT : Bonds Higher as Report Cools Inflation Fears

Bond prices advanced Tuesday after a better-than-expected report on consumer prices eased market concerns about inflation.

The Treasury’s 30-year bond rose 3/4 point, or $7.50 for every $1,000 in face value. Its yield, which moves inversely to price and is often an indicator of interest rate trends, fell to 9.37% from 9.45% late Monday.

The credit markets were pleasantly surprised by the Labor Department’s report that consumer prices rose 0.4% in July. Excluding the volatile food and energy categories, prices rose a moderate 0.3%, and that calmed trader fears about acute inflation.

Traders believe that an increase in inflation would lead the Federal Reserve Board to nudge interest rates higher in hopes of keeping inflation in check. That in turn would force bond prices lower.

A separate report Tuesday, issued by the Commerce Department, showed durable goods orders plunged 7% last month, the steepest drop in seven years.

“We got our initial push from the the CPI data as well as the durable goods” report, said Kevin Flanagan, a money market economist for the investment firm Dean Witter Reynolds Inc.

Volume, which had been very light in advance of the consumer price report, picked up Tuesday, he said.

In the secondary market for Treasury securities, prices of short-term government issues ranged from 3/32 point to 1/8 point higher; intermediate maturities were up 3/16 point to 7/32 point, and 20-year issues rose 9/16 point, according to figures provided by Telerate Inc.

The Shearson Lehman daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, gained 3.69 to 1,126.68.

The federal funds rate, the interest on overnight loans between banks, was quoted at 7.75%, down from 8% late Monday.

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