CREDIT : Bonds Tumble as Inflation Fears Reignite

NEW YORK — A stronger-than-expected report on employment in June drove bond prices lower Friday, capping a week of steady decline.

The Treasury’s closely watched 30-year bond dropped about 1 point, or $10 for every $1,000 in face value. Its yield, which moves inversely to its price and is often an indicator of interest rate trends, jumped to 9.09% from 9% late Thursday.

The yield on the 30-year issue stood much lower--at 8.83%--a week earlier on Friday, July 1.

The Labor Department reported that the civilian unemployment rate in June dropped to 5.3%, its lowest level since 1974. The positive job showing, indicating vigor in the economy, had a negative impact on bond prices by arousing fears of accelerating inflation.

“There’s no doubt that the data had a strong bias to it,” said William Sullivan, director of money-market research at Dean Witter Reynolds Inc. “It’s a constant reminder that the economy is fast approaching a full-employment status.”

Pay Rate Unchanged

The fall in bond values was braked, Sullivan suggested, by a rebound in the dollar Friday against other major currencies on world markets.

Maria Ramirez, a managing director of Drexel Burnham Lambert Inc., said the bond decline also was cushioned by companion Labor Department data showing that the average hourly wage was unchanged at $9.27 last month. Wage increases tend to be a strong indicator of inflation, which erodes the value of fixed-income assets such as bonds.

In the secondary market for Treasury bonds, prices of short-term government issues declined point to 13/32 point, intermediate maturities lost 7/16 point to 9/16 point and 20-year issues fell 27/32 point, according to figures provided by Telerate Inc., a business-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, slipped 0.50 to 109.00. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, dropped 5.43 to 1,140.50.

Fed Funds Rate Dips

In corporate trading, industrials lost 5/8 point and utilities were down 1/2 point, according to the investment firm Salomon Bros. Inc.

Yields on three-month Treasury bills, meanwhile, rose 11 basis points to 6.65%. Six-month bills jumped 24 basis points to 6.97% while one-year bills advanced 16 basis points to 7.24%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 7.438%, down from 7.563% Thursday.

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