CREDIT : Weaker Dollar Blamed for Fall in Bond Prices

Bond prices closed lower Tuesday after struggling to stay afloat earlier in the trading session. Interest rates headed up again.

Analysts attributed the extended slump in bond prices to the dollar’s weakness in foreign exchange trading and some speculation that the Federal Reserve may be tightening credit to aid the wobbly U.S. currency.

The Treasury’s 30-year bond, which on Friday and Monday lost about 2 points, or $20 per $1,000 in face amount, declined an additional $2.50. The bellwether issue had been up by that same amount by midday. Its yield rose to 9.23% from 9.21% late Monday.

Corporate and municipal issues also lost ground, traders said.

“The losses stem from the slight erosion in the dollar’s value and the continued rebound of equity prices,” said William V. Sullivan, director of money market research for Dean Witter Reynolds. “There’s also concern about Fed policy. The Fed has not been adding reserves in the system for a few days.”

Some traders, Sullivan said, believe that the Fed has been purposefully tightening supplies to shore up the dollar and subsequently hold down inflation.

Greenspan Won’t Comment

A weak dollar concerns the credit markets because it makes dollar-denominated bonds and notes less attractive to foreigners and increases the possibility of higher inflation because imports would become more expensive.

However, at a conference of the National Council of Savings Institutions in New York on Tuesday, Federal Reserve Chairman Alan S. Greenspan refused to answer reporters’ questions about the dollar.

Greenspan, in his address to the council, emphasized the need for “ample fiscal discipline as an essential element . . . to foster sustained balanced growth and to maintain progress against inflation.”

He added that “the importance of credible deficit reduction cannot be overestimated.”

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

The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.12 to 109.30. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, was down 0.05 to 1,144.67.

In corporate trading, industrials were off point and utilities declined 3/8 point in light trading, according to Salomon Bros.

In municipal trading, general obligations and revenue bonds were mostly lower in light dealings, according to Jeff Goldstein, a municipal bond trader for Merrill Lynch & Co.

Yields on three-month Treasury bills were up 5 basis points to 5.85%. Six-month bills were unchanged at 6.41%, and one-year bills were up 3 basis points at 6.73%.

The federal funds rate, the interest on overnight loans between banks, traded at 6.688%, down from 6.875% late Monday.

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