CREDIT : Higher Federal Funds Rate Sends Bond Prices Lower

Bond prices fell in light trading Wednesday, reflecting concerns about high interest rates.

The Treasury’s closely watched 30-year bond was down 1/4 point, or $2.50 for every $1,000 in face value. Its yield, which moves inversely to price and is an indicator of interest rate trends, rose to 9% from 8.97% late Tuesday.

Analysts said the market was worried about the surging federal funds rate, the interest banks charge each other on overnight loans. The rate often is seen as an indicator of whether the Federal Reserve is tightening or relaxing credit.

Federal funds were at 9.5%, up from 9% late Tuesday. Analysts said traders interpreted the rate’s high level as evidence of tighter credit, which leads to higher interest rates overall and therefore lower bond prices.

William Sullivan, director of money market research for Dean Witter Reynolds Inc., said concerns about federal funds outweighed factors that should have boosted bond prices: a firmer dollar and lower commodities prices.

In the secondary market for Treasury bonds, the prices of short-term government issues were down 1/32 point to 3/32 point, intermediate maturities fell 3/32 point to 1/4 point, while 20-year issues were off 3/8 point, according to figures from Telerate Inc., a financial information service.

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 down 1.80 at 1,130.55.

Yields on outstanding three-month Treasury bills jumped to 8.50% as the discount rose 1 basis point to 8.22%. Yields on six-month bills rose to 8.79% as the discount advanced 1 basis point to 8.33%. Yields on one-year bills rose to 9.08% as the discount gained 1 basis point at 8.40%.

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