CREDIT : Bonds Buoyed by Fed Action to Firm Dollar

Bond prices rose Wednesday, buoyed by stability in the dollar, signs of eased credit by the Federal Reserve and buyer anticipation that the 1988 market will improve.

The Treasury’s key 30-year issue rose about point, or $2.50 per $1,000 in face amount. Its yield, which moves inversely to price, fell to 8.89% from 8.92% late Tuesday. Short-term yields also fell.

Dealers said the market responded to a relatively stable showing by the dollar, which had been falling sharply over the past few days and had raised fears of higher inflation, which erodes the value of bonds.

The Fed’s announcement earlier in the day of an aggressive five-day repurchase agreement, under which it buys securities and injects cash into the market, also helped because this was seen as a signal of a more accommodating credit policy by the nation’s central bank.

Federal Funds Rate Unchanged

“Repos are a way of providing liquidity, and liquidity is the mother’s milk of bond and stock markets,” said William Veronda, bond portfolio manager for the Denver investment firm of Financial Programs Inc.

Others said investors bought bonds because of the commonly held notion that prices would rise in the beginning of the new year, a phenomenon known as the “January effect.”

Government economic reports of a sharp drop in the index of Leading Indicators and a decline in housing sales had no effect on the bond market. Dealers said the reports had been anticipated.

In the secondary market for Treasury bonds, prices of short-term governments rose about 3/16 point, intermediates rose about 3/8 point and long-term issues rose about point, Telerate Inc. reported.

In corporate trading, industrials and utilities rose about point in light dealings. Moody’s Investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 0.95 to 268.41.

Among tax-exempt municipal bonds, general obligations and revenue bonds rose about 1/2 point in light dealings, traders said.

Yields on three-month Treasury bills fell 8 basis points to 5.73%. A basis point is one-hundredth of a percentage point. Six-month bills fell 12 basis points to 6.15% and year bills fell 8 basis points to 6.58%.

The federal funds rate, the interest on overnight loans between banks, traded at 6.75%, unchanged from late Tuesday.

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