CREDIT : Bonds Slip as Oil Price Rise Squelches Dollar-Led Rally

Bond prices edged lower in light dealings Monday after a rise in oil prices squelched a rally that was led by strength in the dollar.

The Treasury’s bellwether 30-year bond finished unchanged in price as its yield remained at 8.95%, the same as late Friday.

The long bond’s yield remained lower than those of shorter-term securities, an unusual situation that sometimes signals an economic slowdown.

The dollar rose slightly in light activity, helping bonds early in the session. By the time trading ended in New York the dollar fetched 122.80 Japanese yen, up slightly from 122.49 yen late Friday.

Cold weather caused a big jump in prices of home heating oil and supported crude oil futures. The January contract for West Texas Intermediate, the benchmark grade of U.S. crude, settled at $16.06 a barrel, up 22 cents from Friday, when it gained 40 cents.

Higher energy prices raise speculation of rising inflation, which depresses the value of fixed-income investments such as bonds.

Many traders stayed on the sidelines awaiting economic data later in the week that could signal the direction of interest rates, according to James Marshall, a government securities trader at Clayton Brown & Associates in Chicago.

In the secondary market, prices of short-term governments were unchanged to 1/32 point lower, intermediate maturities ranged from 3/32 point lower to 3/32 point higher and the 20-year bond was off 1/16 point, according to Telerate Inc., a financial data service. Yields on three-month Treasury bills rose to 8.17% as the discount rose 3 basis points to 7.91%. Yields on six-month bills rose to 8.68% as the discount rose 1 basis point to 8.22%. Yields on one-year bills rose to 8.93% as the discount rose 1 basis point to 8.29%.

The federal funds rate, the interest on overnight loans between banks, traded at 8.50%, unchanged from late Friday.