FINANCIAL MARKETS : Credit : Treasury Bond Yields Hit Highest Point Since 1985

Treasury bond yields neared 10% on Friday, their highest levels in 22 months, as speculation intensified that the Federal Reserve Board will soon raise its key discount rate, traders said.

The Treasury’s closely watched 30-year issue dropped about 5/8 point, or $6.25 per every $1,000 in face value, after having fallen around 1/2 point on Thursday. The bond’s yield, which moves inversely to its price, jumped to 9.93% from 9.85% late Thursday.

“We’re knocking at the door of 10%,” said Mitchell Held, chief financial economist for Smith Barney, Harris Upham & Co.

Yields on the long Treasury bond haven’t reached these levels since late 1985.

The fed funds rate, the interest on overnight loans between banks, was quoted late in the day at 7.5%, unchanged from late Thursday but still at a relatively high level.

A higher fed funds rate indicates that the central bank has tightened credit by making less money available to banks. With less available from the Fed, banks must turn to each other for loans, pushing up the cost of borrowing.

In the secondary market for Treasury bonds, prices of short-term government issues finished 1/16 point higher to 3/32 point lower, intermediate maturities fell point to 7/16 point and 20-year issues dropped point, according to Telerate Inc., a financial information service.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

In corporate trading, industrials were unchanged and utilities declined 1/8 point in light trading, according to investment firm Salomon Bros.

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