A Healthy Quarter for Bond Funds : Securities: Lipper survey finds most categories had total returns of 3% to 5%.

The bond market switched from bear mode to bull mood in the first quarter, rewarding bond mutual fund owners who stayed put.

But many bond pros remain dubious about the market’s surprising rally.

Most categories of bond funds scored first-quarter total returns--interest plus capital appreciation--of 3% to 5%, according to data reported Wednesday by fund tracker Lipper Analytical Services.

That followed full-year 1994 losses of about the same magnitude for many funds.

Bonds’ first-quarter gains came as market interest rates fell, reacting to the apparently slowing economy. Rates had rocketed last year with the surging economy.

Among key fund categories:

* California municipal bond funds scored the biggest average first-quarter gains of any bond type tracked by Lipper. Funds that buy long-term California muni bonds posted an average total return of 7.73% in the quarter after losing 7.52% in 1994.

California issues had suffered more than most muni bonds last year as Orange County’s bankruptcy intensified the already-severe beating bonds took from higher interest rates.

* GNMA mortgage bond funds gained 4.82% in the quarter, the best of all taxable bond categories. Though interest rates declined, they didn’t fall enough to encourage widespread mortgage refinancing--a problem for GNMA funds.

* Long-term U.S. government bond funds gained 4.54% after losing 4.63% on average last year.

Short-term and intermediate-term bond funds posted smaller gains, but they also lost less in 1994; market interest rate changes have less effect on shorter-term bond values than on longer-term bonds.

Though the first-quarter rally restored lost principal for many bond fund owners, they still would have been better off in money market funds over the past year: The average money fund’s return was 4.3% for the 12 months ended March 31.

Looking ahead, many bond pros doubt that market interest rates will continue to plummet as they did in the first quarter. Though the economy appears to be weakening, bond yields already reflect that, many experts contend.

Bonds “look to me to be really expensive now,” says David Mac- Ewen, muni fund manager at Benham Group. Yields on tax-exempt muni bonds are less attractive, relative to yields on U.S. Treasury issues, than at any time in the last four years, he says.

Patrick Retzer, manager of the Heartland U.S. Government Fund, thinks yields may still slide this spring, but not for long. “I wouldn’t be surprised to see a blow-off (buying binge) here--but then I think we’d have a significant correction,” pushing yields back up, he says. But he also sees rates falling again later this year.

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Average Total Returns

Here are average total returns for key categories of bond mutual funds for three periods ended March 31. Total return includes interest earnings plus or minus any change in the bonds’ principal value.

Average total return Fund category 1st Qtr. 12 mos. 5 yrs. Calif. muni bonds, long-term +7.73% +5.9% +44.1% General muni bonds, long-term +6.96% +6.2% +45.7% GNMA bonds +4.82% +4.8% +45.7% High-quality corporate bonds, long-term +4.73% +3.4% +50.8% Lower-quality corporate bonds, long-term +4.66% +3.4% +55.8% U.S. govt. bonds, long-term +4.54% +3.0% +45.3% Junk corporate bonds +4.49% +1.6% +80.0% High-quality corporate bonds, 5- to 10-year +4.36% +3.7% +48.1% U.S. govt. bonds 5- to 10-year +4.34% +3.2% +44.5% Mixed bonds +4.12% +1.1% +59.2% Global bonds, long-term +3.47% +2.4% +52.8% U.S. govt. bonds, 1- to 5-year +3.23% +2.9% +37.9% High-quality corporate bonds, 1- to 5-year +2.87% +3.4% +40.0% Adjustable rate mortgage bonds +1.46% -0.5% +31.0% Money market +1.32% +4.3% +24.4% Global money market -0.20% -2.3% +38.7%

Source: Lipper Analytical Services Inc.