CREDIT : Bond Prices Rebound as Dollar Strengthens

Bond prices rebounded Thursday in reaction to the dollar’s improvement on foreign exchange markets.

The Treasury’s 30-year bond rose about 3/4 point, or $7.50 per $1,000 face amount. Its yield, which moves inversely to its price, slipped to 8.69% from 8.77% late Wednesday.

On Wednesday, the bellwether bond closed up about $1.25.

Jay Goldinger, an investment banker with the Beverly Hills-based firm Cantor, Fitzgerald & Co., said that in the absence of any new economic reports, the bond markets focused mainly on the dollar, which rose against most major currencies.

“Watching the market is like watching the teeter-totter,” he said. “When the dollar goes up, interest rates go down.”

Bond traders are concerned about the dollar because a weak U.S. currency could spark higher inflation while making dollar-denominated securities less attractive to foreigners.

Elizabeth G. Reiners, a vice president and bond analyst at Dean Witter Reynolds Inc., said the markets also felt confident the Federal Reserve would not push for higher interest rates, given recent indications of sluggish economic growth.

The government reported Wednesday that housing starts plunged 16.2% in December, while consumer prices, a measure of inflation, rose a modest 0.1% that month.

In the secondary market for Treasury bonds, prices of short-term governments were up 1/8 point; intermediate maturities ranged point to 1/2 point higher, and 20-year issues were up about 5/8 point, 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 0.37 to 111.97.

The Shearson Lehman daily Treasury bond index, which makes a similar measurement, gained 3.59 and closed at 1,170.91.

Corporate bonds also rose in value. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, gained 1.83 to 276.32.

Yields on three-month Treasury bills rose 4 basis points to 5.83%. Six-month bills fell 2 basis points to 6.21%, and one-year bills were off 9 basis points at 6.37%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, traded at 6.25%, down from 6.75% late Wednesday.

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