Credit : Disappointment in Results of Treasury Auction Hurts Bonds

NEW YORK —  Bond prices declined Wednesday, reflecting investors’ disappointment with the results of the government’s latest note auction.

The Treasury’s closely watched 30-year issue fell about 3/16 point, or roughly $2 per every $1,000 in face value. Its yield, which moves inversely to its price, edged up to 9.79% from 9.78% late Tuesday.

Analysts said there was some disappointment with the Treasury’s auction Wednesday of $6.76 billion of seven-year Treasury notes.

Yields on the notes rose to the highest level since late 1985. The average yield was 9.51%, up from 8.10% at the last comparable auction on June 25.

“It was sloppy,” said Ward McCarthy, chief financial economist for Merrill Lynch Capital Markets. “It just didn’t seem to be particularly aggressively bid for.”

Analysts said the bond market shrugged off, on the other hand, the news that major banks raised their prime rates to 9.25% from 8.75% because the credit markets had anticipated the hike for some time.

The prime rate increase “was pretty much in the cards,” said Alvan Markle, an analyst for investment firm Butcher & Singer in Philadelphia.

In the secondary market for Treasury bonds, prices of short-term government issues declined 1/8 point to 5/32 point, intermediate maturities fell about 9/32 point, and 20-year issues fell 5/8 point, according to Salomon Bros.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

In corporate trading, industrials were unchanged and utilities slipped 1/8 point in active trading, Salomon Bros. said.

Among tax-exempt municipal bonds, general obligations lost 1/2 point and revenue bonds declined point in light activity, Salomon Bros. said.

Rates on three-month Treasury bills, meanwhile, edged up 1 basis point to 6.53%. Six-month bills rose 3 basis points to 6.95% and one-year bills were also up 3 basis points, at 7.41%. 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 7.25%, unchanged from late Tuesday.