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CREDIT : Bond Prices Fall as U.S. Begins Securities Auction

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Associated Press

Bond prices fell and interest rates pushed higher Tuesday as the federal government began this week’s three-part, $26-billion securities auction.

The price of the Treasury’s 30-year bond fell 3/16 point, or about $2 for every $1,000 face amount. Its yield rose to 9.18%, its highest level in nearly five months, from 9.16% late Monday.

The last time the bellwether issue yielded that much was when it was 9.2% in mid-December.

The Treasury securities auctions are being held against a backdrop of speculation that the Federal Reserve may be tightening credit conditions in an effort to head off another round of inflation.

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Worries about inflation have intensified in recent weeks as the economy continues to show surprising strength, as was evident in last week’s report that the unemployment rate had fallen to a 14-year low of 5.4%.

In the first stage of the auctions, the Treasury sold $8.75 billion in three-year notes at the highest yields since last November.

The average yield on three-year Treasury notes rose to 8.23%, up from 7.42% at the last auction in February and the highest since three-year notes averaged 8.74% at the November auction.

Elliott Platt, director of economic research for Donaldson Lufkin & Jenrette Securities, said the auction “was a touch disappointing.” He said the market had expected the notes would go for an average yield of about 8.20%, but that there was insufficient demand at that level.

The federal funds rate, the interest charged on short-term loans between banks, rose to 7.25% from 7.125%.

In the secondary market for Treasury bonds, prices of short-term governments fell 1/16 point, intermediate maturities fell by between 5/32 point and 5/16 point and 20-year issues fell 5/32 point, according to Telerate Inc.

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In the tax-exempt market, prices of municipal and revenue bonds rose 1/16 point.

Yields on three-month Treasury bills gained 4 basis points to 6.33%. Six-month bills fell 3 basis points to 6.48%, and one-year bills rose 2 basis points to 6.88%.

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