CREDIT : Bond Prices Dip; Investors Unsure Fed Acted on Rates

Bond prices slipped Thursday and a key short-term interest rate rose as traders puzzled over whether the Federal Reserve had taken steps to boost interest rates.

The Treasury’s bellwether 30-year bond fell 3/32 point, or about $1 for every $1,000 in face value. Its yield edged up to 9.05% from 9.04% late Wednesday.

Trading volume was light, as investors sorted through the available evidence on the economy’s strength and the central bank’s likely reaction to the growth. Some analysts expect that the Fed will tighten credit for fear that the pace of economic growth will rekindle inflation.

Economic reports this week indicated only a moderate decline in the nation’s trade imbalance in October while industrial production, the industrial operating rate and retail sales all rose in November.

Traders also pointed to the West German central bank’s hike in one of its key lending rates Wednesday as increasing chances that the Fed may do the same.

Higher interest rates depress the prices on outstanding bond issues.

An important U.S. lending rate, the federal funds rate, rose as high as 9% Thursday before settling at 8.875% late in the day, up from 8.375% late Wednesday.

The federal funds rate is the interest that banks charge each other for short-term loans, and the Federal Reserve can influence the level of the rate indirectly by buying or selling government securities in the open market.

Tax Deadline Cited

Some traders concluded that when the Fed failed to do so at its traditional midday juncture, while the federal funds rate was trading at 8.75%, the central bank had indeed tightened its credit policy.

But others were not convinced. They noted that Thursday was a corporate tax payment deadline and said that may have resulted in a drain on bank reserves, forcing banks to borrow money.

Robert Brusca, chief economist for Nikko Securities International, said he doubts that the Fed “is going to tighten in a clear, noticeable way.”

“I don’t see any reason to do it. The economy has shown we can get a surprising amount of growth without inflation, and I don’t think the (Fed’s) board of governors wants to stand in the way of that,” Brusca said.

In the secondary market for Treasury issues, prices of short-term government issues were down 3/32 point, intermediate governments fell 1/16 point and 20-year issues lost 1/16 point, according to Telerate Inc., a financial information service.

The movement of a point equals a change of $10 in the price of a $1,000 bond.

The Shearson Lehman daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.68 to 1,129.78.

T-Bill Yields Jump

In corporate trading, industrials were down. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, fell 0.83 to 292.95.

In the tax-exempt market, prices lost 1/16 point, according to the Bond Buyer’s index of 40 actively traded municipal issues.

Yields on three-month Treasury bills rose to 8.45% as the discount rose 7 basis points to 8.17%. Yields on six-month bills fell to 8.68% as the discount slipped 10 basis points to 8.22%. Yields on one-year bills rose to 9.16% as the discount rose 5 basis points to 8.49%.

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