Interest rates on short-term T-bills fell sharply.

The Treasury Department sold $7.2 billion in new three-month bills at an average discount rate of 6.98%, down from 7.23% last week. Another $7.2 billion was sold in new six-month bills at an average discount rate of 7.14%, down from 7.28% last week. The new discount rates understate the actual return to investors--7.20% for three-month bills and 7.51% for six-month bills. The discount rate reflects the price discount received when government securities are purchased at less than face value. The auction, which is normally held on Mondays, was conducted on Tuesday because of the federal holiday honoring Martin Luther King Jr.