NEW YORK — Bond prices declined Thursday, easing at the end of a volatile session.
The Treasury's closely watched 30-year bond fell by about 1/2 point, or $5 for every $1,000 in face value, while its yield rose to 8.42% from 8.38% on Wednesday.
Prices were down slightly at the opening of trading but rebounded after the Commerce Department revised its fourth-quarter economic growth estimate to 4.5% from 4.2%.
Signs of strong economic growth tend to push interest rates higher--and bond prices lower--but the latest increase in growth came mainly from a buildup in business inventories. During the same period, the key consumer spending component plunged 3.1%, the biggest spending drop in more than seven years.
But bond prices later began declining in response to several factors, analysts said, including a rebound in precious metals prices, which are regarded by many investors as an indicator of inflationary sentiment. Inflation erodes the value of fixed-income investments such as bonds.
Analysts also speculated that the market sold off out of general nervousness in advance of the government's consumer price inflation report scheduled for release today.
Mitchell Held, chief financial economist for investment firm Smith Barney Inc., said economic reports in recent weeks have tended to point to stronger growth than had been anticipated. Continued strong growth could lessen the possibility that the Federal Reserve will attempt to push interest rates lower to stimulate the economy and raises the danger of higher inflation.
In auctions of new securities, the Treasury sold $7.25 billion in five-year, two-month notes at an average yield of 7.65%, down from 8.30% at the last comparable auction on Nov. 24.
It was the lowest rate since the notes averaged 6.73% on Feb. 25.
In the secondary market for Treasury bonds, prices of short-term governments fell about 1/8 point, intermediate maturities fell in the range of 5/32 point to 9/32 point and 20-year issues fell 3/4 point, according to the Telerate financial 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, fell 0.24 to 113.39. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, fell 2.37 to 1,185.89.
Among tax-exempt municipal bonds, general obligations and revenue bonds were down about 3/8 point.
Yields on three-month Treasury bills fell 1 basis point to 5.62%. Six-month bills were unchanged at 5.79% and one-year bills rose 2 basis points to 6.22%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, was quoted at 6.563%, up from 6.313% on Wednesday.
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