CREDIT : Bond Prices Decline as Early Rally Fades Away

NEW YORK — U.S. government bond prices edged lower Tuesday after an early rise based on dropping stocks and oil prices faded in the afternoon, traders said.

The Treasury’s key 30-year issue, up point in the early going, finished down 1/16 point, or less than $1 for each $1,000 in face amount. Its yield rose to 9.09% from 9.08% on Monday.

Slumping stock prices touched off a small rally as investors shifted funds from stocks to bonds in the morning. Lower oil prices also kindled expectations of lower inflation in the credit market, but both stocks and oil prices pared their losses in the afternoon.

Pressure of Deficit

The dollar’s health is critical for bonds and other dollar-denominated assets. A falling dollar not only discourages foreign investors from holding U.S. stocks and bonds, but it also means that U.S. interest rates may have to be pushed higher to shore up the currency.

Analysts said trading was light and that many market participants were more concerned with November trade data to be released Friday by the Commerce Department. An unexpectedly high deficit number would put intense pressure on the dollar and hurt bond and stock prices, analysts said.

In the secondary market for Treasury bonds, prices of short-term governments lost 1/32 point, intermediate maturities were off 3/32 point and 20-year issues were unchanged, according to Telerate Inc., a financial reporting 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, rose 0.05 to 110.02. But the Shearson Lehman daily Treasury bond index, which makes a similar measurement, fell 0.20 to 1,151.35.

Yields on three-month Treasury bills rose 15 basis points to 5.83%. Six-month bills were unchanged at 6.33% and one-year bills rose 1 basis point to 6.67%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, traded at 6.675%, down from 6.875% on Monday.

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