NEW YORK, SEPT. 29 -- Bond prices dropped sharply today, hammered by persistent concern about a wave of new government issues flooding the market.
The stock market, buoyed initially by a strong dollar, succumbed instead to worries about the bond market's persistent weakness. The Dow Jones average of 30 industrials closed down 10.93 at 2590.57.
The Treasury's closely watched 30-year issue tumbled 1 5/16 point, or about $13 per every $1,000 in face value. That catapulted its yield, which moves inversely to its price, from 9.66 percent late Monday to 9.82 percent -- the highest level since late 1985, according to analysts.
Corporate and municipal bonds declined 5/8 point to 3/4 point.
"Everyone's staying away from this market," said Mitchell Held, chief financial economist for investment firm Smith Barney, Harris Upham & Co. "It looks cheap now, but it could get cheaper."
"The weakness in the bond market was the key to the whole day," said Larry Wachtel, analyst at Prudential-Bache Securities. "Stocks floundered through most of the day, not showing much pizzazz, and when you flounder all day, you go south in the last hour."
Investors continued to question whether the market could handle the onslaught of new bonds and notes to be offered as a result of President Reagan signing a bill this afternoon raising the national debt limit, analysts said.
The government last week postponed the sale of $12.8 billion of three- and six-month bills and $23.25 billion of "mini-refunding" notes. In addition, another $12.8 billion of three- and six-month notes and $9.25 billion of one-year bills are scheduled to be auctioned later this week.
Analysts say it will be difficult to absorb these new issues without a further rise in interest rates.
At today's auction of two-year Treasury notes, yields rose to the highest level in nearly two years. The average yield on the notes was 8.57 percent, up sharply from 7.86 percent at the last comparable auction on Aug. 26.
The dollar rose sharply against the major foreign currencies as a bullish sentiment returned to trading floors.
In Tokyo, the dollar rose 1.83 Japanese yen to close at 146.05 yen, its highest since Aug. 18 and its biggest single-day rise since June 17. Later, in London, it rose further to 146.15 yen and, in New York, the dollar rose to 146.565 yen from 144.38 yen late Monday.
On the New York Stock Exchange, declining issues outnumbered advances by about 3-2.
On Monday, the Dow industrial average climbed 31.33 points to 2601.50.
Salomon Inc. jumped 2 1/8 to 36 7/8 in active trading today. Revlon Chairman Ronald O. Perelman offered to buy the same 12 percent stake in Salomon that Nebraska investor Warren Buffett already has agreed to purchase.
Dayton Hudson rose 1 1/2 to 59 3/4 after Dart Group raised its bid to acquire Dayton Hudson to $6.62 billion, or $68 per share.
Among actively traded blue chips: IBM was down 2 1/4 to 150 1/2; AT&T was down 1/8 at 34 3/8; American Express was up 7/8 to 35 5/8, and Exxon was unchanged at 49 1/4.
Ford fell 2 1/2 to 95 7/8 following the death of Henry Ford II, grandson of Ford's founder and a former chairman of the automaker.
Big Board volume fell to 173.53 million shares from 188.07 million shares in the previous session. The NYSE index fell 0.68 to 180.06.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 201.22 million shares.
Standard & Poor's index of 400 industrials fell 2.01 to 375.83, and S&P's 500-stock composite index was off 1.51 to 321.69. At the American Stock Exchange, the market value index was off 1.87 to 355.04