CREDIT : Bond Prices Get Support From Dollar, Close Higher

Bond prices finished higher Thursday in thin trading, supported by favorable sentiment surrounding the dollar.

The Treasury’s key 30-year issue was up nearly $6 per $1,000 in face amount. Its yield, which moves inversely to price and is a possible signal of other interest rate trends, declined to 8.85% from 8.92% late Wednesday.

Bond prices opened higher and held their ground throughout the trading session. Analysts noted, however, that few investors were active in the credit markets.

Many already had squared their positions ahead of the end of the quarter, while others had already left to get a jump on the long Independence Day weekend.

Bond traders initially were encouraged that the dollar’s value did not decline significantly after the West German central bank hiked a key interest rate, which theoretically makes the West German mark worth more.

‘Strange Phenomenon’

Belgium and the Netherlands also raised key interest rates, following the West German move.

The dollar’s value is closely watched in the credit markets because it directly affects bond values. A stronger dollar attracts foreign capital and boosts bond prices, while a weaker dollar discourages foreigners from investing in the United States, incites higher inflation and erodes bond prices.

Although the dollar declined later in New York trading, bond prices failed to retreat in what one analyst called “a strange phenomenon.”

“I don’t see bonds reacting to anything understandable,” said Robert Brusca, chief economist and senior vice president at Nikko Securities Co. International Inc.

He said that despite the dollar’s weaker finish in New York, “there seems to be better underlying sentiment” toward the U.S. currency that helped to support bond prices.

Elizabeth Reiners, a vice president at Dean Witter Reynolds Inc., also noted that traders are beginning to realize that the Treasury may not sell 30-year bonds at the regular quarterly refunding in August.

Municipal Issues Rise

“That can raise prices because of a lack of supply,” she said.

In the secondary market for Treasury bonds, prices of short-term government issues rose 1/16 point to 3/16 point, intermediate maturities rose 3/16 point to 15/32 point, and long-term issues gained 15/32 point, according to figures provided by Telerate Inc., a financial information service.

The movement of a point equals a $10 change 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 0.18 to 110.21. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, rose 3.15 to 1,153.16.

Municipal issues rose. In corporate trading, industrials and utilities also rose. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 0.53 to 285.03.

Yields on three-month Treasury bills were off 2 basis points at 6.55%. A basis point is one-hundredth of a percentage point. Six-month bills fell 1 basis point to 6.70% and year bills fell 4 basis points to 6.97%.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 8.25%, up from 7.75% late Wednesday.