	u s credit market outlook cautious trading u s bond trading is likely to remain cautious in the near term with a possible downward price bias as market participants focus on trends in the dollar the economy and federal reserve policy economists said most expect the economy to continue showing modest gains that the dollar has more room to fall and that the fed will keep policy essentially steady perhaps for several months until trends are clearer the market can only attempt to to establish and hold a new trading range at higher interest rates said economists at merrill lynch capital markets merrill lynch economists raymond stone and ward mccarthy said that while the fundamentals generally bode for a healthy investment climate the market will have no confidence in this environment until there is illumination of and confidence in u s dollar trade policy salomon brothers henry kaufman said the bond market highly sensitized to dollar movements could be encouraged if currency markets seem to be stabilizing or if u s and overseas economic growth is perceived as slowing sharply the crucial question however is how soon either of these developments is likely to occur kaufman said market uncertainties and the erosion of portfolio manager confidence could continue portfolio selling pressure a while longer said philip braverman chief economist at irving securities corp however braverman said that from a longer term perspective current bond prices provide a buying opportunity despite a nearly one point bond price rebound friday on unexpectedly weak march employment data key year treasury bonds lost points in price for the week as a whole and thursday s pct closing yield was a high braverman said historical evidence suggests that a long bond yield in the pct area provides a basis for optimism bonds closed at pct on friday the irving economist noted that three times last year in a similar paroxysm of pessimism the key bonds reached a similar closing yield high within three to six weeks in each instance however braverman said bond prices recovered to bring the yield down sharply by to basis points mitchell held of smith barney harris upham and co inc said that many portfolio managers now believe yields could approach nine pct by midyear which he considers unlikely held said that since late smith barney analysts have spoken about the risk that interest rates could move higher and they continue to believe that an upward bias is likely to persist over the next few months held said that in conversations with portfolio managers last week there appeared to be increasing belief that the rate rise had just begun and that yields could approach nine pct by midyear naturally that would mean a sharp bond price fall yields could rise further over the next few months but the rise should be less than the basis point rise we ve seen since the start of the year held said most expect fed policy to be neutral for bonds near term the fed is currently frozen into a fixed stance said economists at aubrey g lanston and co inc they said the fed cannot tighten policy and push up interest rates as might be appropriate to stabilize the dollar and head off renewed inflationary psychology that might harm the fragile u s economic expansion the lanston economists said the fed cannot ease its policy stance to both foster more rapid economic growth and calm domestic and third world debt jitters without the threat of causing a further decline in the dollar minutes of february s federal open market committee fomc meeting released friday showed that while the fomc left policy unchanged it was more inclined to firm rather than ease policy later if conditions in the economy foreign exchange or credit markets warranted a policy shift however economists generally believe that continued fairly sluggish u s economic growth and the financial strains on u s banks resulting from their problem loans to developing countries rule out any fed policy firming there is broad agreement among economists that the fomc at last tuesday s meeting also left fed policy unchanged this week s u s economic data are expected to have little impact february consumer instalment credit numbers are due on wednesday with march producer price data out friday there may be mild relief in some quarters that the u s purchasing managers composite index a closely watched economic indicator rose only to pct in march from pct a friday rumor had put the number far higher the index s first quarter average also was pct translating into real gnp growth of about three pct if continued through federal funds traded at pct late friday and are expected to open about there today with no fed action seen reuter 
