Government bond prices slumped on Thursday after moving higher for seven straight days.
The dollar fell despite new rate cuts in Germany. Stocks moved higher.
At 4 p.m., the price of the Treasury's 30-year bond was down 1 3/8, raising the yield to 5.96% from 5.86%.
Ten-year notes were down about a point, increasing the yield to 5.34% from 5.22%. Five-year notes were off about 1/2, raising the yield to 4.74% from 4.61%. Two-year notes were down about 1/4, lifting the yield to 3.87% from 3.75%.
The selloff started in Japan, as fears spread that the U.S. House Ways and Means, Committee was considering a plan to establish a withholding tax on interest earned by foreigners on U.S. bonds.
Aversion to Taxes
"At these low yields, investors do not want to pay tax," said Astrid Adolfson, economist at MCM Money Watch.
The fears eased later in the day after Clinton administration officials said they did not plan to support the proposal.
Adding to the negative sentiment in the bond market, the Labor Department said new claims for unemployment insurance fell 10,000 in the week ended Sept. 4.
However, analysts said the bond market was ready to take profits.
"A lot of these reports were used as excuses to ring the cash register," said Kevin Flanagan, money market economist at Dean Witter, Discover & Co.
Rate Cut in Germany
Overseas, the Bundesbank cut the discount rate by half a point to 6.25% and Lombard rate by the same amount to 7.25%.
Rate cuts abroad typically help the dollar, but Thursday's moves had the opposite effect. Analysts said the rate cuts had already been factored into the market.
In New York, the dollar finished at 1.600 marks, off from 1.6140.
Stocks, which had been tracking bonds for much of the summer, posted modest gains despite the weakness in bonds. The Dow Jones industrial average rose 0.56 point to 3,589.49. The Standard & Poor's 500 index gained 0.85 to 457.50. And the Nasdaq composite index shot up 6.98 to 737.71.