Short-Term Rates Continue Sharp Drop As Federal Funds Charges Lead Decline
NEW YORK -- Short-term interest rates fell sharply again yesterday, continuing a steep decline that began early this month.</br></br>Rates on some Treasury bills tumbled by about three-eighths of a percentage point. The interest rate on federal funds, which are reserves banks lend each other, dropped to as low as 4% yesterday afternoon from Tuesday's average of 9.24%.</br></br>The big drop in rates this month mainly reflects a slowdown in economic growth and a credit-easing move by the Federal Reserve System, many analysts say. But even these analysts contend that yesterday's extremely low federal funds rate probably was an aberration. Banks and savings institutions had to settle their accounts yesterday with the Fed. The funds rate often swings widely on settlement days.</br></br>Interest rates have tumbled in recent weeks despite a huge volume of U.S. notes and bonds that have been sold. Yesterday, the Treasury sold $6.02 billion of new three-year, 11-month notes at an average annual yield of 11.42%. That was down sharply from 13.69% at the previous auction of similar notes last June and was the lowest auction average since last December. The Treasury also sold $1 billion of the notes in a special form, designed for foreign investors, at an average yield of 11.41%.</br></br>"The Fed is engaged in a rather vigorous easing" move, said Robert A. Brusca, vice president and money-market economist at Irving Trust Co. Fed officials, as usual, won't comment on current policy. But Mr. Brusca said he expects banking figures to be released this afternoon by the Fed to confirm that it has eased credit conditions.