The yield curve continued to flatten last week as long-term rates fell and short-term rates held steady. For investors, the changing spreads between long and short rates offer myriad opportunities.

One play is at the long end, where the spread between the 10-year Treasury note and the 30-year Treasury bond has contracted during the past month.

Some analysts are recommending thirty-year bonds, callable in 10 years, for investors attracted by the higher yields in longer maturities. Thirty-year bonds callable in 10 years should benefit from the shrinking 10-year to 30-year spread, they said.

Several issuers sold 30-year bonds callable after 10 years last week, including Amoco Canada Petroleum Co. and Champion International Corp.

Such bonds are yielding 35 to 40 basis points more than 20-year noncallable bullets, but 15 to 20 basis points less than 30-year noncallable bullets.

If the yield curve continues to flatten at the long end, 30-year bonds callable after 10 years will outperform 20-year noncallable bullets, according to analysts at First Boston Co.

Bonds with the two different maturities have similar durations. Duration measures a bond's general sensitivity to changes in interest rates by combining the bond's yield to maturity, time to maturity, and coupon amount.

The price of a bond with a longer duration will generally be more sensitive to interest rates than a bond with a lower duration.

For example, Georgia Pacific has outstanding 81/4% bonds due in 2023 that are callable in 2003 and trade for 104.686 to yield 7.84% to maturity. The 8 1/4s have an effective duration of 9.57. The company's 9 1/2% bonds due in 2011 trade for 1 19.812 to yield 7.49% to maturity and a duration of 9.25.

The total return on the two bonds for the next year will be very similar if rates rise or fall, or even if rates stay at current levels, according to analysts at First Boston.

If rates fall 1% in the next year, the 8 1/4 bond will have a total return of 17.28%, while the 91/2 will return 17.05%. If rates rise 1%, the 8V4 will return a loss of 1.29%, and the 9 1/2 will return a loss of 0.90%. And if rates are unchanged, the 8 1/4 will return 7.64%, and the 91/2 will return 7.48%.

But if the spread between the 10-year and the 30-year contracts, the 30-year, callable in 10 years, will return 11.97%, while the 20-year will return 6.85%.

Stone-Consolidated Corp., the Canadian subsidiary of Stone Container Corp., filed with the Securities and Exchange Commission to issue $200 million of senior secured notes and $125 million of senior unsecured notes to U.S. investors. Salomon Brothers will manage the offering.

In addition, Stone Container plans to sell a minority equity stake in the Canadian subsidiary to Canadian investors.

In the secondary market on Friday morning, spreads on investment grade bonds narrowed five to seven basis points, as losses in the Treasury market outpaced falling corporate prices. But in the afternoon, the Treasury market recovered some of its losses, and traders said spreads closed only a couple of basis points tighter.

In the below-investment grade market, prices were down 1/8 to 1/4 in quiet trading.

New Issues

Federal National Mortgage Association issued $250 million of step-up medium-term notes due in 1998. The notes, noncallable for two years, were priced at par to yield 4.40%, a spread of 24 basis points more than comparable Treasuries. After two years, the notes pay 5.55%. Merrill Lynch managed the deal.

Late on Thursday, Uniroyal Chemical Co. issued $270 million of 9% senior notes due in 2000. The noncallable notes were priced at par to yield 9%. The notes are rated B1 by Moody's Investors Service and B-plus by Standard & Poor's. Morgan Stanley & Co. managed the deal.

Cellular Inc. issued $100 million of senior subordinated discount notes due in 2003. The notes, noncallable for five years, were priced at 56.609 to yield 11.75% to maturity. Moody's Investors Service rates the notes Caa and Standard & Poor's rates the notes CCC. BT Securities managed the deal.

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