CREDIT : Bond Prices Close Unchanged to Slightly Higher

Bond prices finished unchanged to slightly higher Friday in volatile trading, as an early rally inspired by new economic reports ran out of steam.

The Treasury’s closely watched 30-year bond rose about 3/16 point, or $1.87 for every $1,000 in face value. Its yield, which moves in the opposite direction and is often an indicator of interest rate trends, slipped to 8.90% from 8.92% late Thursday.

The yield on the key 30-year issue reached as low as 8.80% and as high as 8.94% during the session.

Prices surged early in the trading day on the strength of government reports suggesting moderate growth and tame inflation, analysts said.

They said the market was influenced largely by a Labor Department report that showed wholesale prices, a key inflation component, rose only 0.4% in September, restrained by sharply falling energy prices.

The report suggested that inflation, which erodes the value of fixed-income investments, is not as significant a threat as earlier feared.

In other reports, the Commerce Department said retail sales fell an unexpected 0.4% in September, suggesting a decline in consumer demand, another important inflation component.

Dollar Ends Rally

At the same time, the Federal Reserve Board said industrial production was unchanged in September, an indication that economic growth is moderating and further easing inflationary pressures.

Analysts said bond prices later retreated, however, in response to a steep decline in the dollar against other major currencies and a rise in oil prices.

“We took a beating,” said Kevin Flanagan, a money market economist at Dean Witter Reynolds Inc.

A weakening of the dollar tends to erode the value of bonds and notes denominated in the U.S. currency, while rising oil prices rekindle fears of inflation.

In the secondary market for Treasury bonds, prices of short-term government issues were unchanged to 1/32 point higher, intermediate maturities were flat to 1/16 point higher, and long-term issues rose 5/32 point, according to figures provided by Telerate Inc., a financial information service.

Fed Funds Rate Rises

The Shearson Lehman Hutton daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, was up 0.43 at 1,150.28.

In corporate trading, industrials and utilities also rose. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, edged up 0.35 to 294.96.

Yields on three-month Treasury bills, meanwhile, slipped to 7.55% as the discount fell 1 basis point to 7.32%. Yields on six-month bills rose to 7.78% as the discount edged up 1 basis point to 7.40%. Yields on one-year bills declined to 8.03% as the discount slipped 1 basis point to 7.50%.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 8.125%, up from 8.063% late Thursday.