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CREDIT : Group of 7 Pledge Provides Lift as 30-Year Bond Surges 1 1/2

December 24, 1987|Associated Press

NEW YORK — Bond prices bounced higher in mostly thin trading Wednesday, buoyed by the market's positive reaction to an international accord aimed at stabilizing the battered dollar.

The Treasury's key 30-year bond, which lost about $13 for every $1,000 in face value over Monday and Tuesday because of concern about higher inflation, soared about 1 1/2 points, or $15 per $1,000. Its yield fell to 8.9% from 9.04% late Tuesday.

A joint statement from the Group of Seven nations late Tuesday decreed that dollar stability was in the common interest of the United States, Japan, West Germany, Britain, France, Italy and Canada. The statement pledged unspecified steps to prevent a further erosion of the currency.

Market analysts said the agreement was interpreted as an immediate sign that the United States will not be forced to push domestic interest rates higher to defend the dollar's value and attract foreign investors.

That assessment would lessen prospects for higher inflation. Bonds lose value when inflation increases.

"There was a little bit better sentiment," said Elizabeth Reiners, a vice president of Dean Witter Reynolds. She said bond prices also were lifted by a sort of "holiday euphoria" in the thinly traded market, which tended to amplify upward movements.

In the secondary market for Treasury bonds, prices of short-term government issues rose 7/32 point to 5/16 point; intermediate maturities gained 7/32 point to 25/32 point, and long-term issues jumped about 1 point, according to Salomon Bros.

The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 0.57 to 110.54. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, jumped 6.07 to 1,156.65.

Among corporate bonds, industrials advanced 3/4 point and utilities gained 1/2 point in moderate trading.

Moody's investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, rose 1.53 to 267.44.

Yields on three-month Treasury bills, meanwhile, dropped 11 basis points to 5.80%. Six-month bills fell 6 basis points to 6.40%, and one-year bills lost 4 basis points to 6.70%. The federal funds rate, the interest on overnight loans between banks, was quoted late at 6.687%, down from 6.75% late Tuesday.

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