Bonds Rise in Light Trading

Rising bond prices helped push stocks to record levels Monday. The bond market closed higher in thin trading as investors responded to an improved dollar and continued to react to negative economic news from last week.

The Treasury’s key 30-year issue was up about 3/4 point, or about $7.50 for each $1,000 in face value, with its yield falling to 7.33% from 7.39% late Friday.

Prices for corporate and municipal bonds were slightly higher.

The stock market’s sharp gains surprised most traders, who attributed much of the rally to the end of year-end tax-selling pressure, which was particularly acute in 1986 due to changes in the tax law.

The Dow Jones average of 30 industrials jumped 44.01 to 1,971.32, topping the previous closing high of 1,955.57 set Dec. 2 and the previous biggest one-day point increase of 43.41 points set Nov. 3, 1982.

The Federal Reserve Board’s announcement of an $8.7-billion jump in the nation’s money supply in the week ending Dec. 22 had no effect on the market, according to William Sullivan, director of money-market research for Dean Witter Reynolds.

However, traders were buying on the basis of the dollar’s modest recovery after it hit six-year lows against the West German mark and Swiss franc, Sullivan said.

Aided Credit Markets

Last week’s announcements by the government that the nation’s monthly trade deficit hit a record of $19.2 billion in November and that construction spending had declined 0.7% the same month also moved the credit markets higher, he said.

Investors generally view bearish news about the economy as good for the bond market because it could prompt the Federal Reserve Board to stimulate the economy by easing credit restrictions. Bond prices and interest rates move inversely.

In the secondary market for Treasury bonds, prices of short-term governments rose about 1/8 point, intermediate maturities ranged from 13/32 point to 17/32 point higher and long-term issues were up nearly 1 points, according to figures provided by 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, rose 0.36 to 118.88.

In corporate trading, industrials and utilities rose 1/2 point in light trading, according to the investment firm of Salomon Bros.

Among tax-exempt municipal bonds, general obligations were up point and and revenue bonds were up 1/2 point, Salomon Bros. said. Trading was light.