Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, February 5, 1991                   TAG: 9102050153
SECTION: BUSINESS                    PAGE: B-7   EDITION: METRO 
SOURCE: The New York Times
DATELINE: NEW YORK                                LENGTH: Medium

INTEREST RATES LOWEST IN NEARLY THREE YEARS

A drop in the value of the dollar, which fell to new lows against the German mark despite concerted efforts by major central banks to prop it up, had no visible impact in the credit markets.

Despite the firm tone, dealers expressed some caution about the Treasury refunding auctions, especially the $11 billion sale on Thursday of new 30-year bonds.

"The market is in excellent shape, but right now prices are the richest they have been in over a year and we are facing the biggest auctions ever," one government bond trader said.

"It all comes down to distribution," the trader added. "If the Street ends up owning a lot of this paper, especially the bond, the market will go down. And I think that some accounts will balk at buying bonds with a yield of just 8 percent."

While worries linger about the market's ability to absorb longer-term securities, demand for short-term Treasury bills was strong at Monday's weekly auction.

Three-month bills were sold at an average discount rate of 5.97 percent, down sharply from the 6.22 percent average rate a week ago. It is the lowest rate on a three-month bill since the auction of April 25, 1988.

Bids on the new six-month bills produced an average discount rate of 5.94 percent, down from an average rate of 6.28 percent last week. It is the lowest rate on a new six-month bill since the sale on March 14, 1988.

The $34.5 billion refunding auctions begin today, with the sale of $12.5 billion worth of new three-year Treasury notes. On Wednesday, $11 billion of new 10-year notes are expected to be sold.

In when-issued trading late Monday, the three-year notes were offered at a price to yield 7 percent. The 10-year notes were offered on a when-issued basis at a price to yield 7.82 percent.

And the 30-year bonds were offered at a price to yield 8.01 percent.

The extremely weak employment data released on Friday, coupled with moves by the Federal Reserve Board shortly after to cut both the discount rate and the overnight Federal funds rate, virtually insured success for the refunding auctions.

But money managers said bond yields might have to back up a bit to attract bids.

"A lot of money managers have been sitting on the sidelines, due to the war," said James Kochan, chief of fixed-income money management at R. W. Baird & Co. in Milwaukee, Wis., "I think you will see very good support for the refunding if yields back up. And I don't think it will take much of a retreat to generate support for these issues."

Analysts said the Federal Reserve appeared to confirm that it has moved its target for the Federal funds rate to 6.25 percent, from 6.75 percent.

On Monday, the Fed drained reserves from the banking system at a time when the funds rate was trading at 6.187 percent.

"I looked at the transaction as confirmation they are at 6.25 percent," said Michael J. Moran, chief economist at Daiwa Securities America Inc.