Brighter Outlook on Fed Policy Helps Prices Rise; Decline in Banks' Discount Window Borrowings Undercuts Pessimism on Interest Rates

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The U.S. Treasury securities market emerged from a turbulent week Friday with prices rising and yields falling as traders became convinced that the pervasive pessimism over the outlook for interest rates has been overdone.

Prompting the late-week change of heart was data from the Federal Reserve Board that seemed to imply that the central bank is not placing any greater pressure on short-term interest rates to rise now than it ws a month ago, when the rapid growth in the money supply first began to stir fears of a tightening of monetary policy.

Specifically, the data showed that bank borrowings at the Fed's discount window amounted to only $419 million a day in the latest week, down substantially from the previous week's daily average of $678 million.

The Fed's figures on bank borrowing are routinely scrutinized by credit market analysts as an indicator of how generous monetary officials are being in providing …