FINANCIAL MARKETS : Economic Views, Overseas Rates Pummel Bond Prices

Bond prices plunged Tuesday following a surge in interest rates overseas and unexpectedly upbeat remarks from Federal Reserve Chairman Alan Greenspan on the U.S. economy.

The Treasury’s closely watched 30-year bond tumbled 1 5/8 points, or $16.25 for every $1,000 in face value. Its yield, which rises when the price falls, soared to 8.66% from 8.46% late Friday.

The bond market was closed Monday in observance of Presidents’ Day.

Analysts said a sharp increase in interest rates in the government bond markets of Japan and West Germany helped trigger the bond selloff.

As rates rise overseas, U.S. rates often follow suit to remain competitive, thereby pushing bond prices lower.

Adding to the downward pressure on prices were comments Greenspan made Tuesday in his annual appearance before Congress, said Kevin Flanagan, a money-market economist for Dean Witter Reynolds Inc.

Greenspan said the economy has likely passed the danger point for an imminent recession. He predicted continued, albeit modest, economic growth for the rest of this year.

The testimony bolstered the belief among many private economists that the Fed is unlikely to move soon to push interest rates lower.

Some economists said bond prices also were hurt by concerns about a flood of available government securities following last week’s federal bankruptcy filing of Drexel Burnham Lambert. Drexel liquidated its Treasury bond holdings.

In addition, the Treasury said Tuesday that it would borrow $6 billion more than previously announced during the January-March quarter to meet the requirements of the savings and loan bailout. That put pressure on Treasury bill yields.

The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.25%, up from 8.188% late Friday.