Bonds Rise as Fears Ease for Tighter Credit
Bond prices posted some modest gains Friday as strength in the dollar appeared to reduce chances that the Federal Reserve would find it necessary to tighten its credit policy.
The Treasury’s 30-year bond rose 14/32 point, or nearly $5 for every $1,000 in face value, as its yield slipped to 8.99% from 9.03% late Thursday.
The bond market took some encouragement from continued strength in the dollar, which moved slightly higher in foreign exchange trading.
Sung Won Sohn, chief economist for Norwest Corp. in Minneapolis, said the dollar’s advance indicated to some bond traders that the Federal Reserve would not have to take additional steps to support the currency.
By tightening its credit policy and driving interest rates higher, the central bank would be contributing to the erosion of the value of bonds outstanding.
Sohn said bond prices also benefitted from short-covering, a process under which traders who had sold borrowed bonds in the expectation that prices would fall found it necessary to buy bonds to complete those deals.
A Commerce Department report that durable goods orders were virtually unchanged in March had little impact on the bond market, Sohn said.
In the secondary market for Treasury bonds, prices of short-term governments rose 1/32 point, intermediate maturities gained 1/8 point and 20-year issues rose point, according to the financial information service 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 0.13 to 110.60. The Shearson Lehman composite index, which makes a similar measurement, rose 1.42 to 1,157.31.
In the tax-exempt market, municipal bond prices rose point.
Yields on three-month Treasury bills fell 1 basis point to 5.82%. Six-month bills rose 1 basis point to 6.25% and one-year bills fell 2 basis points to 6.56%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, traded at 6.813%, down from 6.875% on Thursday.
