CREDIT : Bond Prices Nudged Higher by Strengthening Dollar

Bond prices rose slightly in modest trading today, helped by continued strength in the dollar.

The Treasury’s bellwether 30-year bond rose 3/32 point, or 94 cents per $1,000 in face value, by midday. Its yield, which moves inversely to its price, fell to 9.04% from 9.05% late Monday.

The outlook of a rising dollar helps bond prices by dampening inflation prospects and attracting foreign investors to dollar-denominated investments.

In addition, the dollar’s strength decreases the chance that the Federal Reserve will further tighten interest rates, said Robert Chandross, the chief economist in the North American head office of Lloyds Bank in New York.

The Fed does not want to raise rates too much because that would make dollars even more attractive, Chandross said. The central bank has been trying to hold down the dollar through tactics such as sales of dollars in the open market.

The dollar rose Tuesday despite the Fed’s limited dollar selling.

Bond trading remained fairly light in the absence of important economic news. Traders are looking ahead to Friday’s government reports on wholesale prices and retail sales, which will give an indication of the inflation outlook.

In the secondary market for Treasury bonds, short-term government issues were 1/32 to 3/32 point higher, intermediate maturities were 1/16 point higher and long-term issues ranged from 1/16 point to 5/32 point higher, according to Telerate Inc., a financial information service.

The Shearson Lehman Hutton daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 0.72 to 1,128.70.

Corporate bonds were slightly higher. Moody’s investment grade corporate bond index, which measures price movements on 80 industrial bonds with maturities of five years or longer, rose 0.07 to 294.37.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds was up 7/32 point at 91.5 as of 3 p.m. EST. The average yield to maturity fell to 7.75% from 7.77% late Tuesday.

Yields on three-month Treasury bills fell to 8.55% as the discount fell 8 basis points to 8.27%. Yields on six-month bills fell to 8.89% as the discount fell 6 basis points to 8.41%. Yields on one-year bills fell to 9.13% as the discount fell 2 basis points to 8.46%.

A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discount is the percentage that bills are selling below the face value, which is paid at maturity.

The federal funds rate, the interest on overnight loans between banks, was quoted at 9.125%, unchanged from late Monday.