Short-term interest rates rose on Friday amid warnings about inflation from the Federal Reserve Board's "hawks" and an uptick in consumer confidence.
Late in New York, the six-month Treasury bill was quoted at a bond-equivalent yield of 3.13%, up from 3.08% Thursday. The yield on the two-year Treasury note spiked up to 4.,16% from 4.05% on Thursday.
Ten-year Treasuries yielded 5.94%, up from 5.91 %. But the 30-year bond was unchanged at 6.81%.
Stocks fell on the bond market's weakness and volatility related to the triple-witching hour, in which futures and options expire at the same time.
Negative comments on health care and drug stocks by Kidder, Peabody & Co. and Smith Barney, Harris Upham & Co. also hurt stocks.
Dollar Gains Versus Yen
The Dow Jones industrial average lost 27.12 points to 3,494.77. The Standard & Poor's 500 index fell 4.86 to 443.68. And the Nasdaq composite index lost 6.35 to 689.59.
Boosted by political uncertainty in Japan, the dollar traded at three-month highs against the yen. It finished at 109.60 yen, up from 107.30. Japanese Prime Minister Kiichi Miyazawa lost a no-confidence vote in the lower house of Parliament. This will force a national election.
The dollar rose to 1.6800 marks from 1.6590 on an anticipated cut in German interest rates.
The negative sentiment in the bond market was sparked by comments from Lawrence Lindsey and Wayne Angell, the two Fed governors who are considered the two staunchest advocates of the central bank's current pro-tightening stance.
Mr. Lindsey, in a television interview, predicted inflation would grow a higher-than-expected 4% this year, while Mr. Angell said in Switzerland that inflation was too high.
Inflation fears ran high a few weeks ago but subsided after the government announced that producer prices were unchanged in May and consumer prices up but 0.1% that month.
John Lonski, senior economist at Moody's Investors Service, noted Mr. Lindsey's inflation forecast is much higher than that of most private economists.
The University of Michigan said its closely watched index of consumer sentiment rose to 82.8 in June from 80.3% last month. The report had a moderately negative effect on bond prices.
The bond market gets a heavy dose of new Treasuries this week. Besides the $24 billion in three-month and six-month bills to be sold today, $16 billion in two-year notes will be auctioned Tuesday and $11 billion in five-year notes on Wednesday.