CREDIT : Bond Prices Edge Higher in Light, Cautious Trading

Bond prices posted some modest gains Tuesday, but most traders steered clear of the credit market as they awaited the government’s plans for quarterly borrowing and its report on April unemployment.

The Treasury’s 30-year bond rose 3/8 point, or $3.75 per $1,000 in face value, as its yield slipped to 9.09% from 9.11% on Monday.

Steven A. Wood, economist for BankAmerica Capital Markets Group in San Francisco, said trading was very light, confined mostly to professionals.

“We were in an oversold condition and we corrected some of that,” he said. “The tone is still fairly bearish.”

He said traders took some encouragement from a decline in the federal funds rate, which is the interest that banks charge each other for overnight loans and an indicator of trends in short-term interest rates.

The federal funds rate fell to 6.50% from 6.813% on Monday.

The market has been depressed in recent days by speculation that the Federal Reserve may be about to tighten its credit policy, pushing interest rates higher in an effort to head off inflation.

Wood said most traders were looking toward the Treasury’s scheduled disclosure today of its borrowing plans for the quarter.

The government is expected to sell between $26 billion and $27 billion in notes and bonds next week.

He said the market is also awaiting the government’s report on Friday on April unemployment. Many analysts expect that it will show that the economy is strengthening.

“Those announcements will set the near-term tone for the market. Nobody’s going to want do anything before they come out,” Wood said.

In the secondary market for Treasury bonds, prices of short-term governments edged up 1/32 point, intermediate maturities rose 1/8 point and 20-year issues rose 7/32 point, according to the financial information service Telerate Inc.

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, was up 0.11 at 110.10. The Shearson Lehman composite index, which makes a similar measurement, rose 1.46 to 1,152.37.

In the tax-exempt market, prices of municipal and revenue bonds edged up by about 1/16 point.

Yields on three-month Treasury bills rose 5 basis points to 6.13%. Six-month bills fell 2 basis points to 6.42% and one-year bills were unchanged at 6.71%. A basis point is one-hundredth of a percentage point.

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