CREDIT : Bond Prices Moderately Lower as Interest Rates Rise

Treasury bonds suffered moderate price declines Thursday as interest rates turned higher after the government reported stronger-than-expected economic growth in the first quarter.

The bellwether 30-year issue fell point, or $2.50 per $1,000 face amount, while its yield, which moves inversely to price, climbed to 9.32% from 9.28% on Wednesday.

Some corporate and municipal issues, however, rose slightly.

The Commerce Department reported Thursday that the economy, as measured by the gross national product, grew at a 3.9% annual rate during the first three months of this year. That was up from a previous estimate of 2.3%.

Marshall B. Front, an economist with the Chicago investment firm Stein Roe & Farnham, said bond prices were only moderately lower because the market already anticipated an upward revision in the GNP, although it was a bit higher than expected.

Bondholders worry that a strong economy will lead to higher interest rates because the Federal Reserve would be likely to tighten credit policies to constrict growth and curb inflation.

The Fed already has indicated attempts to push interest rates higher, and an increasing number of analysts are looking for further central bank tightening.

Maria F. Ramirez, an economist and managing director at Drexel Burnham Lambert Inc., said bond market activity has generally been quiet because of a feeling that Fed tightening will continue. She said traders were reluctant to take any major positions until they gained a clearer idea of the Fed’s plans.

In the secondary market for Treasury bonds, prices of short-term, intermediate and long-term issues ranged from 3/16 point to 5/16 point lower, according to figures provided by Telerate The federal funds rate, the interest on overnight loans between banks, traded at 7.75%, up from 7.188% late Wednesday.

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