CREDIT : Bond Prices Head Lower in Cautious Trading

Bond prices slipped in light dealings Wednesday as worries persisted that the April unemployment report due out later this week would show unexpected strength in the economy.

The Treasury’s 30-year bond fell 1/8 point, or $1.25 per $1,000 in face value, as its yield edged up to 9.11% from 9.09% on Tuesday.

Economists said the market remains fearful that the April unemployment report, scheduled for release on Friday, will show stronger than expected job growth and possibly prompt the Federal Reserve to tighten its credit policy to head off inflation.

Rising interest rates drive bond prices lower.

Elizabeth G. Reiners, an economist for Dean Witter Reynolds Inc., said the decline in prices indicated that traders were “setting themselves up” for the possibility that the unemployment figures will show unexpected strength.

She said the decline occurred even though the government’s announcement that it planned to auction $26 billion in notes and bonds next week was smaller than many analysts had expected.

The Treasury said it planned to sell $8.75 billion in three-year notes next Tuesday, $8.75 billion in 10-year notes next Wednesday and $8.5 billion in 30-year bonds on May 12.

In the secondary market for Treasury bonds, prices of short-term governments fell 1/16 point, while intermediate and 20-year issues slipped 3/32 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, fell 0.05 at 110.04. The Shearson Lehman composite index, which makes a similar measurement, fell 0.96 at 1,151.41.

In the tax-exempt market, prices of municipal and revenue bonds were unchanged.

Yields on three-month Treasury bills rose 5 basis points to 6.18%. Six-month bills fell 2 basis points to 6.40% and one-year bills rose 2 basis points to 6.73%. A basis point is one-hundredth of a percentage point.

The federal funds rate fell to 6%, down from 6.5% on Tuesday.

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