FINANCIAL MARKETS : Credit : Bond Prices Tumble; Fear of Glut Blamed

Bond prices dropped sharply Tuesday, hammered by persistent concern about a wave of new government issues flooding the market.

The Treasury’s closely watched 30-year issue tumbled 1.31 point, or about $13 for every $1,000 in face value. That catapulted its yield, which moves inversely to its price, from to 9.82% from 9.66% late Monday--the highest level since late 1985, according to analysts.

Corporate and municipal bonds declined 5/8 point to 3/4 point.

Investors continued to question whether the market could handle the onslaught of new bonds and notes to be offered as a result of President Reagan signing a bill Tuesday afternoon raising the national debt limit, analysts said.

The government last week postponed the sale of $12.8 billion of three- and six-month bills and $23.25 billion of “mini-refunding” notes. In addition, another $12.8 billion of three- and six-month notes and $9.25 billion of one-year bills are scheduled to be auctioned later this week.

At Tuesday’s auction of two-year Treasury notes, yields rose to the highest level in nearly two years. The average yield on the notes was 8.57%, up sharply from 7.86% at the last comparable auction on Aug. 26.

The Treasury announced that it was resuming sales of U.S. Savings Bonds because of the President’s approval of the legislation raising the government’s debt ceiling to $2.8 trillion.

Yields on outstanding three-month Treasury bills jumped 13 basis points to 6.67%, six-month bills edged up 1 basis point to 6.91% and one-year bills gained 11 basis points to 7.30%, according to investment firm Salomon Bros. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 7.375%, down from 7.44% Monday.

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