CREDIT : Bonds Fall on Fears That Inflation May Heat Up

NEW YORK — Bond prices fell Thursday as energy and precious metals prices rose, reminding traders about the risks of inflation.

The Treasury’s bellwether 30-year bond fell 1/2 point, or $5 per $1,000 in face amount, as its yield rose to 8.55% from 8.51% on Wednesday.

Elliott Platt, research director for Donaldson Lufkin Jenrette Securities, said trading activity continued its recent pattern of very light dealings.

“People are just very confused about the strength of the economy, and it will probably stay that way until they get a better feel for it,” he said.

Dampens Expectations

The government is scheduled to report today on retail sales and producer prices in February and on the January merchandise trade deficit next week.

Platt said a rise in oil and gold prices on Thursday challenged the deflationary expectations that many traders had embraced during the past few weeks. Inflation erodes the value of bonds.

In the secondary market for Treasury bonds, prices of short-term government issues fell 3/32 point, intermediate maturities lost between 5/32 point and 9/32 point and 20-year issues fell 3/8 point, according to figures provided by Telerate Inc., a financial information service.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.18 to 112.76. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, fell 2.00 to 1,179.44.

Yields on three-month Treasury bills rose 2 basis points to 5.75%. Six-month bill rose 2 basis points to 5.85% and one-year bills increased 1 basis point to 6.31%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, was quoted at 6.563%, up from 6.438% on Wednesday.

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