CREDIT : Fears of Political ‘Gridlock’ Send Bond Prices Tumbling

Bond prices fell Wednesday as investors worried about the situation facing President-elect George Bush in the wake of his victory.

The decline pushed interest rates over the 9% mark on some key long-term issues for the first time since late September.

The Treasury’s closely watched 30-year bond tumbled about 1/2 point, or $5 for every $1,000 in face value.

Its yield, which often is a key indicator of interest rate trends, jumped to 9.02% from 8.93% late Tuesday. The last time the 30-year yield finished a day at over 9% was Sept. 29, when it was 9.06%.

Bond prices started out with a steep decline but later recovered, finishing on their highs of the day. They were said to be buoyed by better-than-expected results from a key Treasury auction.

Analysts said bondholders were nervous about how Bush would deal with crucial problems such as the budget and trade deficits, and with the Democrat-controlled Congress.

Call for Lower Dollar

“The election results are not conducive to a kinder and gentler bond market,” said David Hale, chief economist for Kemper Financial Services in Chicago, paraphrasing one of Bush’s campaign slogans.

Bond prices are being driven lower by the prospect of political “gridlock” between the new Republican President and the Democrat-controlled Congress, Hale said.

Bonds drew some support from the results of the Treasury’s refunding auction. The average yield on 10-year notes fell to 8.94% from 9.27% at the last comparable auction on Aug. 10.

It was the lowest rate since 10-year notes averaged 8.21% Feb. 3.

Secondary Market Down

The department plans to auction $11 billion in 37-day cash-management bills today.

In the secondary market for existing Treasury bonds, prices of short-term government issues slipped 3/32 point to 7/32 point, intermediate maturities declined 5/16 point to 3/8 point, and 20-year issues fell 1/2 point, according to Telerate Inc., a financial information service.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 8.25%, unchanged from late Tuesday.