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Short-term T-Bills hit two-year low

Interest rates on Treasury securities fell to a two-year low Monday, a sign that short-term rates may be going down. The Treasury Department sold $9.8-billion in three-month bills at an average discount rate of 7.12 percent, down from 7.20 percent last week. Another $9.8-billion was sold in six-month bills at an average discount rate of 7.13 percent, down from 7.16 percent.

The rates were the lowest since three-month bills sold for 7.05 percent Aug. 15, 1988, and six-month bills averaged 7.09 percent July 25, 1988.

The new discount rates understate the actual return to investors _ 7.35 percent for three-month bills and 7.50 percent for six-month bills.

Also on Monday, the Federal Reserve Bank added cash to the banking system, a move that provides downward pressure on interest rates.

The Fed acted even though the federal funds rate, the rate banks pay for overnight loans, was at 7.75 percent, below the Fed's presumed target of 8 percent. Some economists interpreted the action as a signal the Federal Reserve is preparing to ease credit.

But longer-term bond prices fell sharply Monday as traders focused on what they feared would be an oversupply of Treasury issues.

The price of the 30-year bond tumbled | point, or about $6.25 per $1,000 in face amount. Its yield, which rises as the bond's price falls, surged to 8.83 percent from 8.77 percent late Friday.