Prices in the credit markets drifted lower in quiet trading Monday, with most of the losses seen in longer-maturing securities.
Analysts attributed the slump to a weak dollar in foreign exchange and investors' dissatisfaction with the budget-trimming agreement reached last week, which calls for $76 billion in cuts over two years.
"I think the market is disgusted with Congress," said Jay Goldinger, an investment banker for Cantor, Fitzgerald & Co. in Beverly Hills. "The only reason the market held up as it did today because it didn't have to deal with it (the budget) for now."
Elizabeth Ginste Reiners, a vice president at Dean Witter Reynolds, noted that specific tax increases still need to be negotiated, and that the accord faces an uphill fight to win congressional approval next month.
In the meantime, the $23 billion in across-the-board spending cuts required under Gramm-Rudman took effect Friday.
Bond investors are concerned about the level of government debt because it controls the supply of bonds and notes in the market.
In the secondary market for Treasury bonds, the 30-year bond, which on Friday gained about 3/4 point, or $7.50 for every $1,000 in face value, fell about $5. Its yield, though, remained unchanged at 8.88%.
Prices of short-term governments fell between 3/32 point and 5/32 point, intermediate maturities ranged from 1/8 point to 5/16 point lower and 20-year issues were down about point, according to figures provided by Telerate Inc.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.12 to 110.73. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, stood at 1,158.72, down 1.29.
In corporate trading, industrials were off point and utilities were down 1/8 point in light trading, according to the investment firm of Salomon Bros.
Yields on 3-month Treasury bills were up 7 basis points to 5.76%. A basis point is one-hundredth of a percentage point. Six-month bills rose 2 basis points to 6.25% and 1-year bills were 4 basis points higher at 6.47%.
The federal funds rate, the interest on overnight loans between banks, traded at 6.813%, up from 6.75% late Friday.