FINANCIAL MARKETS : Credit : Note Auction, Dollar Drive Down Bonds

The dollar’s fall against major currencies and disappointment with the results of the latest Treasury auction combined to push bond prices lower Thursday.

The Treasury’s closely watched 30-year issue dropped about 1/2 point, or $5 per every $1,000 in face value. Its yield, which moves inversely to its price, jumped to 9.85% from 9.79% late Wednesday.

Analysts said bond prices came under pressure from the declining dollar--which makes instruments denominated in the U.S. currency, such as bonds and notes, less attractive to foreign investors. The dollar was quoted at 144.17 Japanese yen in late New York trading, down from 145.19 yen late Wednesday.

“The key is the dollar,” said Jay Goldinger, an investment broker for Cantor, Fitzgerald & Co. in Beverly Hills.

There was also some residual disappointment with the Treasury’s auction Wednesday of $6.76 billion of seven-year Treasury notes, analysts said.

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.

The auction “didn’t go as well as was expected,” said Elizabeth Reiners, a vice president at the investment firm Dean Witter Reynolds.

In the secondary market for Treasury bonds, prices of short-term government issues declined 5/16 point to 9/16 point, intermediate maturities fell about 17/32 point, and 20-year issues dropped 27/32 point, according to Telerate Inc., a financial information service.

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 fell 1/2 point and utilities slumped 3/4 point in moderate trading, according to the investment firm Salomon Bros.

Among tax-exempt municipal bonds, general obligations were down 3/4 point and revenue bonds retreated 3/8 point in light activity, Salomon Bros. said.

Rates on three-month Treasury bills, meanwhile, jumped 16 basis points to 6.66%, according to Telerate. A basis point is one-hundredth of a percentage point. Six-month bills soared 34 basis points to 7.28% and one-year bills advanced 22 basis points to 7.63%.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 7.50%, up from 7.25% late Wednesday.

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