CREDIT : Prices of Oil and Dollar Keep Bonds Lower

Government bond prices declined for a second consecutive session Wednesday, depressed by weakness in the dollar and higher oil prices.

The Treasury’s 30-year bond fell 1/2 point, or about $5 for every $1,000 in face amount. Its yield, which moves in the opposite direction, rose to 8.90%, from 8.85% late Tuesday.

Trading was relatively light.

Analysts said dealers continued to take profits following last week’s run-up in bond prices. So far this week, the Treasury’s long bond has lost nearly half of its gain in the previous week, when the 30-year issue jumped $20 in face amount.

A weaker dollar and higher oil prices “provided a sort of catalyst, a reason to sell,” said Nancy Vanden Houten, a money market economist at Merrill Lynch & Co.

Traders often interpret higher oil prices as a signal that inflation might be picking up.

Analysts noted, however, that activity remained subdued ahead of the Commerce Department’s report on the August trade deficit, scheduled to be released today. The consensus in the credit markets is that the deficit will come in somewhere between $11 billion and $11.5 billion.

While that would be up from July’s revised $9.5 billion deficit, Houten noted that “what’s important is what’s expected.”

In the secondary market for Treasury bonds, prices of short-term governments fell between 1/32 point and 1/16 point, intermediate maturities fell between 3/16 point and 1/2 point and long-term issues were down 17/32 point, the Telerate Inc. financial information service reported.

Treasury bonds also fell in price. The Shearson Lehman daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 2.57 to 1,150.69.

The federal funds rate, the interest on overnight loans between banks, traded at 8.125%, down from 8.313% late Tuesday.