Bond Yields Hit 18-Month High as Prices Tumble

Bond prices fell sharply Tuesday, pushing yields on long-term Treasury bonds to their highest levels in 18 months, as inflation fears were fanned by a continuing decline in the dollar and rising gold prices.

The Treasury’s 30-year bond fell 1 1/8 point, or $11.25 for every $1,000 in face value. Its yield climbed to 9.27% from 9.16% late Monday.

The yield on 30-year Treasury bonds has not been that high since February, 1986, according to William Griggs, managing director of the investment firm Griggs & Santow Inc.

Griggs and other analysts said bond traders viewed the movements in the dollar and gold as an indication that inflation could accelerate, a development that would erode the value of fixed-income investments.

But at the same time, they said the pace of trading was light and that price movements, as a result, were exaggerated.

Meantime, the Treasury Department sold $9.5 billion in 52-week bills at an average discount rate of 6.74%, up from 6.52% at the last auction Aug. 4 and the highest since 7.19% on an issue auctioned Feb. 13, 1986.

Among municipal issues, general obligations slipped 3/8 point and revenue bonds fell 1/2 point in light dealings, Salomon Bros. said.

The federal funds rate, the interest rate banks charge each other for short-term loans, was quoted at 6.75%, compared to 6.81% late Monday.