CREDIT : Bonds Gain in Rally Sparked by Dollar

NEW YORK — Bond prices rose Monday in a rally that traders attributed in part to the dollar’s higher value overseas and a belief that the Federal Reserve isn’t as worried about inflation as earlier thought.

Trading was light, however, reflecting reluctance by many bond investors to act before some possibly significant announcements from Washington later this week, notably the size of the Treasury’s next quarterly refunding and the Labor Department’s unemployment figures for July.

The Treasury’s key 30-year bond rose about a half-point, or $5 per $1,000 in face amount. Its yield eased to 9.15% from 9.21% on Friday.

Edward Treichel, investment strategist for Van Kampen Merritt Investment Advisory Corp. in Lisle, Ill., said the dollar’s higher value abroad helped bond prices, although the dollar finished mostly lower in U.S. trading.

The bond market generally responds favorably to a higher-valued U.S. currency because it increases the worth of dollar-denominated securities to foreign buyers and eases the prospects of domestic inflation.

Others said the bond market was supported Monday by continuing optimism over Fed Chairman Alan Greenspan’s remarks last week that the central bank hasn’t taken action in recent weeks to tighten credit. Many bond analysts deduced from those remarks that inflation fears are exaggerated.

In the secondary market for Treasury bonds, prices of short-term governments rose about 1/8 point, intermediate maturities rose 1/2 point and long-term issues also rose about 1/2 point, according to Telerate Inc., the financial information service.

The movement of a point is equivalent to 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, rose 2.75 to 1,139.47.

In corporate trading, industrials rose. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, advanced 0.18 to 282.35.

Among tax-exempt municipal bonds, general obligations and revenue bonds rose between and 1/2 point in light trading.

Yields on three-month Treasury bills fell to 7.1% as the discount fell 4 basis points to 6.90%. Yields on six-month bills fell to 7.46% as the discount fell 1 basis point to 7.11%. Yields on one-year bills were unchanged at 7.86%, and the discount was unchanged at 7.33%.

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, traded at 7.813%, unchanged from Friday.