FINANCIAL MARKETS : CREDIT : Bonds Prices Move Opposite to Oil

Bond prices rose in response to a temporary drop in oil prices and a rumor about trouble at a major bank, traders said.

The Treasury’s benchmark 30-year bond rose 3/16 point, or about $1.88 for every $1,000 in face amount. Its yield, which declines when prices rise, fell to 8.57% from 8.59% late Tuesday.

Bond prices were hurt Tuesday when the sale of $3.5 billion worth of bonds by the government’s Resolution Funding Corp. did not go as well as expected. But prices jumped shortly after the trading day began Wednesday on a rumor that a major New York bank was having liquidity problems due to troubled real estate loans.

If substantiated, that could spur interest in Treasury bonds as some investors seek to move their money into a safer place.

Later in the day, bond prices also received a boost when oil futures prices dropped. Lower energy prices can ease inflation, which is one of the prime fears of investors in fixed-income securities such as bonds. But oil prices later reversed, returning to the level at the start of the day, causing bond prices to decline.

The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.125%, down from 8.1875% late Tuesday.