NEW YORK — Bond prices fell sharply Monday in reaction to a renewed plunge in the dollar's value, although dealers said trading was light because of the year-end holiday week.
The Treasury's key 30-year issue fell 3/4 point, or about $7.50 for each $1,000 in face amount. Its yield rose to 8.98% from 8.92% Thursday, the last day of trading before Christmas.
Bond analysts attributed the market's behavior to a stiff drop in the dollar, which came despite assertions by the seven major industrialized nations last week that a further fall in the currency is undesirable.
The falling dollar also pushed the stock market sharply lower in light trading Monday.
The dollar hit record lows against the Japanese yen and West German mark, the two most commonly quoted foreign exchange comparisons of the U.S. currency's decline in value.
"I guess our view is that the bond market was reacting to that and the fact that nobody was buying today because of the holiday week," said Roger Maurer, an analyst at the Denver investment firm Financial Programs Inc.
Bond prices are sensitive to the dollar's depreciation because it can discourage foreigners from buying U.S.-denominated securities and raise the rate of inflation, which erodes the value of bonds and stocks.
Most economists say the real test of the dollar's value will come next month when normal trading volumes resume. The major industrialized nations may then be forced to fulfill their pledge to defend the dollar by purchasing large amounts of the currency.
In the secondary market for Treasury bonds, prices of short-term governments fell 1/8 point, intermediate maturities fell 1/2 point and long-term issues fell 3/4 point, Salomon Bros. said.
In corporate trading, industrials and utilities fell about 1/2 point in light dealings.
Yields on three-month Treasury bills fell 3 basis points to 5.71%. Six-month bills were unchanged at 6.40%, and one-year bills rose 3 basis points to 6.71%.
The federal funds rate, the interest on overnight loans between banks, traded at 6.813%, up from 6.75% Thursday.
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