CREDIT : Declining Stock Market Sends Bond Prices Sharply Higher

Bond prices advanced sharply Tuesday as the stock market slumped and the Treasury launched a massive securities auction.

The Treasury’s bellwether 30-year bond rose nearly a full point, or $10 for every $1,000 in face value. Its yield fell to 9.03% from 9.12% late Monday.

Analysts said the latest broad decline in stock prices apparently lured some investors to the relative stability of fixed-income securities.

Bond prices had opened lower in what analysts said was a reaction to the depressed level of the dollar, which has been trading near record lows against the Japanese yen and the West German mark.

But bond prices quickly reversed course as stock prices fell.

The Dow Jones industrial average, which was down 100 points at one point, finished the day off 50.56 points at 1,963.53.

Maury Harris, economist for Paine Webber Group, said bond traders appeared to view the latest decline in stock prices as an opportunity to buy bonds.

In the afternoon, the Treasury started its $23.75-billion sale of notes and bonds by auctioning $9.76 billion in three-year notes.

The average yield on the notes amounted to 8.03%, up from 7.94% at a three-year note auction last August and the highest level since three-year notes averaged 8.11% on Feb. 18, 1986.

In the secondary market for Treasury bonds, prices of short-term government issues rose 1/16 point, intermediate maturities were up by between 3/16 point and 13/32 point and 20-year issues rose 5/8 point, according to Salomon Bros.

The federal funds rate, the interest banks charge each other on overnight loans, was quoted at 6.675%, unchanged from late Monday.