CREDIT : Bond Prices Drop Despite Good News on Inflation, Oil

Bond prices fell Friday despite a drop in oil prices and a report of lower-than-expected inflation.

The Treasury’s 30-year bond fell 19/32 point, or $5.94 for every $1,000 in face value. Its yield, which moves in the opposite direction from its price and is often an indicator of interest rate trends, rose to 8.90% from 8.84% late Thursday.

“It looks pretty ugly out there in bond land,” said Mitchell Held, chief financial economist for Smith Barney, Harris Upham & Co.

The Labor Department reported that retail prices rose 0.3% last month. The price rise was considered moderate and was down a notch from the 0.4% increases of July and August.

Oil prices fell sharply as nervous market participants worried about talks in Madrid between two key OPEC committees trying to work out an agreement to bolster sagging world markets by cutting the cartel’s excess oil output.

In the secondary market for Treasury bonds, prices of short-term government issues slipped 1/16 point to 3/32 point, intermediate maturities declined 1/8 point to 3/16 point, and 20-year issues dropped 11/32 point, according to figures provided by Telerate Inc., a financial 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, fell 1.67 to 1,149.78.

Corporate bonds also declined. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, slipped 0.38 to 294.26.

Yields on three-month Treasury bills, meanwhile, rose to 7.67% as the discount edged up 1 basis point to 7.43%. Yields on six-month bills rose to 7.98% as the discount advanced 2 basis points to 7.58%. Yields on one-year bills rose to 8.15% with the discount up 2 basis points at 7.58%.

The federal funds rate, the interest on overnight loans between banks, was quoted at 8.187%, down from 8.375% late Thursday.