Bond Prices Rise on Wide Expectations Of Reduction in the Discount Rate Soon
NEW YORK -- Bond prices rallied yesterday amid widespread speculation that the Federal Reserve System soon will announce a long-awaited cut in its discount rate.</br></br>Those hopes grew yesterday after West Germany's central bank reduced its discount rate to 3 1/2% from 4%, effective today. That gives the Fed additional leeway to ease its credit policy, analysts said.</br></br>Some actively traded Treasury bonds climbed about 3/4 point, or around $7.50 for each $1,000 face amount. Short-term interest rates fell.</br></br>"It looks like the Fed is about to lower its discount rate at long last," said David M. Jones, an economist at Aubrey G. Lanston & Co. The discount rate, the fee the Fed charges on loans to banks and savings institutions, has been 7 1/2% since last May.</br></br>The move could come as early as this afternoon, Mr. Jones said. He also predicted that banks will quickly follow with a reduction in their prime, or base, rate on corporate loans to 9% from 9 1/2%. The last round of prime rate reductions by major banks came last June.