Long-term interest rates surged Wednesday, a belated reaction to Federal Reserve Board Chairman Alan Greenspan's inflation alarm the day before.

Market analysts said concern about upcoming sales of Treasury securities and heavy issuance of competing long-term debt by corporations also exerted pressure.

In late trading, the price of the government's 30-year bond fell 7/8, raising the yield to 6.62% from 6.55% the day before.

Ten-year notes yielded 5.82%, up 9 basis points; five-year notes yielded 5.16%, up 10 basis points; and two-year notes yielded 4.12%, up 5 basis points.

On a bond-equivalent basis, three-month bills yielded 3.14%, up 3 basis points.

Scenario for Rate Hike

In the first part of his semiannual Humphrey-Hawkins testimony on Tuesday, Mr. Greenspan said inflation has been disappointing this year and that the Federal Reserve may increase short-term interest rates if economic growth picks up.

Mr. Greenspan's remarks caused short-term rates to shoot up on Tuesday, but longer-term securities showed a more muted response that day.

Astrid Adolfson, economist at MCM MoneyWatch, noted that Wednesday's rise represented a catch-up on the long end."

Heavy Government Sales

The Treasury on Wednesday announced that it will issue $16 billion in two-year notes next Tuesday and $11 billion in five-year notes next Wednesday.

While the amounts met expectations. the announcement marked the beginning of a period of heavy selling of new securities by the government.

The summer re-funding, including the sale of an expected record $11 billion in 30-year bonds, begins next month.

John Canavan, market analyst at Stone & McCarthy Research Associates. said a planned 30-year bond issue by the Tennessee Valley Authority also hurt the Treasury market. That offering was canceled later. The Dow Jones average rose 10.62 points to a record 3.555.40.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.