CREDIT : Bonds Slip on Renewed Fears of Higher Rates

Bond prices fell Tuesday as a stronger-than-expected government report on November retail sales revitalized speculation about higher interest rates.

The Treasury’s bellwether 30-year bond closed down 7/32 point, or nearly $2.25 per $1,000 face amount. Its yield, considered an indicator of overall interest rate trends, rose to 8.97% from late Monday’s 8.95%.

Analysts said traders were disheartened by the Commerce Department’s announcement that retail sales soared 1.1% in November.

Sung Won Sohn, an economist with the Minneapolis bank holding company Norwest Corp., said the bond market had anticipated a retail sales increase of about 0.4%, so the actual jump came as bad news because it indicated that the economy remains robust. That could indicate higher inflation, which erodes returns on fixed-income securities.

Higher Rates Anticipated

Traders expected that the Federal Reserve Board, whose Open Market Committee was meeting Tuesday and today, to move interest rates higher to cool the economy. Bond prices and interest rates move in opposite directions, and credit tightening by the Fed would depress bond prices.

In the secondary market for Treasury bonds, prices of short-term governments were down about 5/32 point, intermediate maturities were 7/32 point to 7/16 point lower and 20-year issues were off 3/8 point, according to Telerate Inc., a financial information service.

Yields on three-month Treasury bills rose to 8.38% as the discount rose 14 basis points to 8.11%. Yields on six-month bills rose to 8.78% as the discount rose 11 basis points to 8.31%. Yields on one-year bills rose to 9.04% as the discount rose 11 basis points to 8.39%.

The federal funds rate, the interest on overnight loans between banks, traded at 8.313%, down from 8.50% late Monday.