CREDIT : Bond Prices Beat a Retreat as Crude Oil Prices Advance

NEW YORK — Bond prices pulled back Wednesday as a rise in crude oil prices stirred some inflation worries and traders took profits in the wake of the market’s biggest one-day advance in three months.

The Treasury’s bellwether 30-year bond lost 3/8 point, or about $3.75 for every $1,000 in face value. Its yield rose to 8.97% from 8.92% late Tuesday.

On Tuesday, Treasury bond prices shot up by as much as $20 for every $1,000 in face value on a combination of short-covering by professional traders and speculation that Soviet President Mikhail S. Gorbachev would offer peace initiatives on his visit to New York that would enable the United States to reduce defense spending and its budget deficit.

On Wednesday, Gorbachev said in a speech to the United Nations that the Soviet Union planned to cut its European troop levels by half a million. He met later with President Reagan and President-elect George Bush.

Immediate Cuts Unlikely

“People were surprised at the size of the rally yesterday,” said Leonard Santow, a managing director of the financial consulting firm Griggs & Santow in New York.

He said traders “got some time to think about it overnight” and realized that no matter what proposals Gorbachev made, chances were remote for an immediate and significant cut in the U.S. military budget.

“The budget impact would probably be quite a few years off,” Santow said.

As a result, he said traders who “jumped into the market and made some money” Tuesday sold some of their holdings to take profits Wednesday.

Santow said that no matter what happens to the Soviet-U.S. arms race, the U.S. economy is growing faster than the Federal Reserve would like to see, adding that the central bank would encourage higher interest rates before year-end.

Other analysts noted that oil prices staged another advance Wednesday, as West Texas Intermediate crude oil finished at $15.74 a barrel, a 28-cent rise after a 12-cent gain Tuesday.

Rising oil prices stir worries in the bond market that inflation could be accelerating, a development that would erode the value of notes and bonds.

In the secondary market for Treasury bonds, prices of short-term governments lost 1/8 point to 9/32 point, intermediate maturities fell 5/16 point and 20-year issues dropped 3/8 point, according to Telerate Inc., a financial information service.

The movement of a point is equals a change of $10 in the price of a $1,000 bond.

The Shearson Lehman daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 3.82 to 1,138.86.

In corporate trading, industrials were higher. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, edged up 0.08 to 295.81.

In the tax-exempt market, prices rose by about 3/16 point, according to the Bond Buyer index of 40 actively traded municipal issues.

Yields on three-month Treasury bills rose to 8.26% as the discount rose 8 basis points to 7.99%. Yields on six-month bills rose to 8.64% as the discount rose 7 basis points to 8.18%. Yields on one-year bills rose to 8.82% as the discount rose 8 basis points to 8.19%.

A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discount is the percentage that bills are selling below the face value, which is paid at maturity.

The federal funds rate, the interest on overnight loans between banks, traded at 8.438%, down from 8.563% late Tuesday.

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