The Treasury market continued its post-tightening blues yesterday, as a weaker dollar and heavy selling by a few institutions dragged prices down.

With little economic news on tap for this week, market participants had expected Treasuries to remain locked in a narrow range.

But the dollar fell again over the weekend, reducing demand for dollar-denominated investments. And despite some rumors that the Bank of Japan might intervene to prop up the U.S. currency, the trend continued yesterday, as the dollar weakened against the Japanese yen and the German mark.

In late New York trading, the dollar was quoted at 97.80 yen, down from 98.65 on Friday, and at 1.5280 marks, down from 1.5379 on Friday.

Last week's trade deficit numbers are still pounding the dollar, along with continued uncertainty about U.S.-Japanese trade talks.

Although the U.S. trade gap was relatively stable in June, imports hit a new monthly high of $56 billion. And the gap for goods alone, excluding services, grew to its largest monthly level, over $9 billion, in seven years.

In late trading yesterday, the 30-year bond was down 3/4 to yield 7.54%, and the 10-year note was down 13/32 to yield 7.30%.

Yesterday's weak market does not bode well for this week's auctions. The Treasury Department plans to sell $17.25 billion of two-year notes today and $11 billion of five-year notes on Wednesday.

In late trading yesterday, the 6 1/8 two-year note was down 3/32 to yield 6.22%, and the five-year note was down 5/32 to yield 6.58%.

The short end outperformed yesterday, causing the yield curve to steepen slightly. The federal funds rate dropped five basis points to 4.6875%.

The yield on the three-month bill was down two basis points to 4.63%, the six-month bill was unchanged to yield 5.09%, and the one-year bill was up two points to yield 5.65%.

In debt futures, the September Treasury bond contract closed down 22/32 at 102 1/8.

There was one bright spot for the market yesterday. The Commodities Research Bureau index dropped 1.28 to 228.49. But the index, a measure of commodities futures prices and a leading indicator of inflation, didn't have much influence. Rainy weather, which could boost crop yields, depressed soybean futures. Energy prices also dropped, as the summer season winds to a close with falling demand for gasoline.

In the corporate market, investment-grade bonds dropped in line with Treasuries. Below-investment grade bonds fell 1/4 to 1/2.

High-yield bonds outperformed Treasuries through July of this year, according to Moody's Investors Service. The rating agency reported in its July/August report that the total year-to-date return on bonds rated Bal and below was 0.35%.

Shorter maturity bonds outperformed significantly, as seven-year junk bonds returned -0.14% versus - 5.35% for seven-year Treasuries.

Analysts at CS First Boston are recommending bonds of MBNA Corp. and its wholly owned subsidiary, MBNA America Bank.

The subsidiary recently issued $100 million of medium-term notes with a coupon of 7.30% that matures in 1998.

The bank is rated A2 by Moody's Investors Service and A-minus by Standard & Poor's Corp., while the parent is rated A3 by Moody's and BBB-plus by Standard & Poor's.

"MBNA Corp.'s stellar record of asset growth, profitability, and asset quality makes it the premier monoline credit card bank," First Boston analysts Matthew Burnell and Kevin Morley wrote in a research report last week.

The analysts also said that Standard & Poor's will probably upgrade MBNA and its subsidiary this year to a mid-A rating. The agency last upgraded MBNA in September 1993.

"We believe MBNA has performed well enough since the last S&P upgrade to warrant an upgrade in the near future," the analysts wrote.

Standard & Poor's reaffirmed its ratings on Johnson & Johnson yesterday, following the company's announcement that it would pay $900 million for Neutrogena Corp.

The company has a senior unsecured rating of AAA and a commercial paper rating of A-1-plus on $2.6 billion of outstanding debt.

Financing the Neutrogena acquisition "will only moderately impact the company's strong financial measures," the rating agency said. Treasury Market Yields Previous Previous Monday Week Month3-Month Bill 4.63 4.54 4.466-Month Bill 5.09 5.13 4.941-Year Bill 5.65 5.58 5.522-Year Note 6.22 6.24 6.103-Year Note 6.58 6.58 6.405-Year Note 6.95 6.95 6.877-Year Note 7.14 7.12 7.0310-Year Note 7.30 7.29 7.2330-Year Bond 7.54 7.50 7.51 Source: Cantor, Fitzgerald/Telerate

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