CREDIT : Bond Yields Hit 2-Month Highs on Inflation Jitters

Bond prices tumbled Monday, pushing long-term interest rates to their highest levels in more than two months as the falling dollar ignited new worries about inflation.

The Treasury’s closely watched 30-year bond fell 1 1/2 points, or about $15 per $1,000 in face value, as its yield climbed to 8.83% from 8.68% on Friday. The last time 30-year yields closed that high was Jan. 14, when they finished at 9.02%.

Analysts said a new decline in the dollar in foreign exchange trading fueled the bond price decline.

In Tokyo, for example, the dollar fell 1.31 Japanese yen to close at 124.43 yen. Later in New York, the dollar closed even lower at 123.84 yen, down from 125.30 yen Friday.

A decline in the dollar cuts returns available to foreigners on investments denominated in dollars, discouraging them from adding to their portfolios.

It also makes imports more expensive and raises the possibility that U.S. producers will feel less pressure to keep prices low to compete with foreign-made products.

Meanwhile, the Treasury sold $12.8 billion in short-term securities as rates fell from last week on three-month bills and rose on six-month bills.

In the secondary market for Treasury bonds, prices of short-term governments fell 10/32 point, intermediate maturities plunged by between 18/32 point and 1 3/32 points and 20-year issues fell 1 1/16 points, according to the investment firm of 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.

The Shearson Lehman Hutton composite index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 7.56 to 1,165.48.

In corporate trading, industrials and utilities fell a full point in moderate trading, according to the investment firm Salomon Bros.

Yields on three-month Treasury bills rose 4 basis points to 5.74%. Six-month bills rose 13 basis points to 6.03% and one-year bills rose 12 basis points to 6.38%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, traded at 6.5625%, up from 6.50% on Friday.