CREDIT : Brief Increase in Oil Prices a Factor in Bonds’ Decline

A weaker dollar, renewed fears of inflation and rising oil prices drove bond prices lower Tuesday.

The Treasury’s closely watched 30-year issue slipped 1/16 point, or about 62 cents for every $1,000 in face value. Its yield edged up to 9.11% from 9.10% Monday.

At a Treasury auction, yields on two-year notes rose to the highest level for such a sale in three years.

The average yield was 8.88%, up from 8.33% at the last two-year note auction Oct. 26. It was the highest rate since two-year notes averaged 8.90% on Oct. 23, 1985.

Bond prices dropped sharply in early trading, sending the yield on the key 30-year Treasury issue to 9.14%. They later recovered some ground as oil prices retreated, after ministers of the Organization of Petroleum Exporting Countries sent confusing signals about the chances for the cartel agreeing on production cutbacks.

Through most of the day, though, analysts said bonds were weakened by the dollar’s decline in foreign exchange trading, the subsequent strength in metals prices, higher oil prices and a government report on consumer prices.

“It’s a very negative atmosphere,” said William V. Sullivan, director of money market research for Dean Witter Reynolds Inc.

Concern Over Inflation

Oil prices shot up after reports that OPEC members may be close to reaching a production accord. But they later retreated when OPEC ministers backed away from their optimism.

Higher oil and metals prices sparked more worries about higher inflation, an enemy of the bond market. Also weighing on bond prices was a Labor Department report showing that consumer prices rose 0.4% in October, for an annualized rate of 5.1%. The annualized rate had declined to 4.1% in September.

In the secondary market for Treasury bonds, prices of short-term government issues declined 5/32 to 3/16 point, intermediate maturities were down 3/16 to 7/32 point and 20-year issues lost 7/32 point, according to Telerate Inc., a financial information service.

The movement of a point equals a change of $10 in the price of a $1,000 bond.

Municipals Drop

The Shearson Lehman daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 1.19 to 1,134.94.

In corporate trading, industrials also lost ground. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, slipped 0.66 to 293.67.

In tax-exempt trading, prices declined 1/4 point, according to the Bond Buyers municipal bondindex.

Yields on three-month Treasury bills, meanwhile, rose to 8.28%, with the discount up 5 basis points at 8.01%. The yield on six-month bills rose to 8.52% as the discount jumped 9 basis points to 8.07%. Yields on one-year bills advanced to 8.69% as the discount rose 8 basis points to 8.06%.

The federal funds rate, the interest on overnight loans between banks, was quoted late at 8.375%, up from 8.313%.