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CREDIT : Bonds Gain on Belief That Fed Is Easing Credit Policy

February 11, 1988|Associated Press

NEW YORK — Bond prices moved higher Wednesday on speculation that the Federal Reserve had relaxed its credit policy, an opinion with which some economists disagree.

The volume of dealings was depressed because many traders were reluctant to take positions in the market in advance of Friday's release of December figures for the nation's balance of trade.

The Treasury's closely watched 30-year bond rose 1/2 point, or $5 for every $1,000 in face value, as its yield fell to 8.30% from 8.33% late Tuesday.

The speculation about the Fed's intentions was fueled by a continuing low federal funds rate, the interest banks charge each other for short-term loans.

The rate finished at 6.25%, up from 5% late Tuesday but well below the 6.438% rate Monday.

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"There has been a lot of confusion coming from the federal funds rate," said Maury Harris, economist for Paine Webber.

He said the low rate indicated to some traders that the Fed, which was concluding a private two-day policy-making meeting, had decided to relax its credit policy, which would make bonds that have already been issued more valuable.

But Harris said the bond rally "reflected an overreaction" to the federal funds rate movements.

He said that while he expects the Fed will eventually ease credit, he doubts that it has done so yet and that the decline was merely due to technical conditions in the money markets. Wednesday was a settlement day for banks who must report reserve levels to federal regulators.

Utilities Higher

In the secondary market for Treasury bonds, prices of short-term governments rose 1/8 point, intermediate maturities rose point and 20-year issues climbed 17/32 point, according to the investment firm Salomon Bros.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

In corporate trading, industrials and utilities rose point in moderate trading, Salomon Bros. said.

Yields on three-month Treasury bills fell 3 basis points to 5.56%. Six-month bills rose 3 basis points to 5.84% and one-year bills edged up 1 basis point to 6.11%. A basis point is one-hundredth of a percentage point.

Tables, Page 15

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