NEW YORK (CNN/Money) - Long-term debt sank Wednesday after the government indicated it would issue a new batch of 30-year bonds.

Meanwhile, the dollar fell to six-week lows against the yen after the Federal Reserve said inflation was under control.

The cash price of the 30-year bond tumbled 1-24/32 points to 111-24/32 to yield 4.59 percent, up from 4.52 percent late Tuesday.

The benchmark 10-year note fell 5/32 of a point to 98-15/32 to yield 4.19 percent. Bond prices and yields move in opposite directions.

The five-year note added 1/32 of a point to 100-19/32, yielding 3.86 percent, and the two-year note also added 1/32 of a point to 100 even, yielding 3.17 percent.

Longer-dated debt plummeted after Assistant Secretary for Financial Markets Timothy Bitsberger said the Treasury would "examine if we have flexibility to issue 30-year bonds."

A possible issuance of new 30-year bonds, which last happened Oct. 31, 2001, will rob the note of its scarcity and drive down the price.

Traders said the country's ballooning deficits, combined with a desire to lock in low interest rates and meet institutional demand for long- term debt made the sale likely.

"The Treasury tends to follow through with changes in new issuance when it forewarns of possible changes," said Tony Crescenzi,

chief bond market strategist at Miller Tabak & Co, in a research note.

Crescenzi said a final decision on the new sale won't arrive until August 3 and questioned why it has taken the government so long to consider this move. "Where was the Treasury when the rest of America was refinancing its debt?"

The 10-year note also fell as stocks rallied on news that investor Kirk Kerkorian had tendered an offer for up to 28 million shares in General Motors, (up $5.03 to $32.80, Research) which also sparked talk that Kerkorian might be out to shake up the struggling automaker and make it more profitable.

The news boosted equities, pulling money out of safe-haven investments.

In currency trading, the euro bought $1.2948, up from $1.2863 late Tuesday, while the dollar fell to ¥104.54 from ¥105.02.

The Federal Reserve Tuesday raised its key interest rate to 3 percent, the eighth quarter-point rise in eight meetings since last June, and in a corrected policy statement said that long-term inflation remained contained.

"The market got ambitious in what they were expecting from the Fed. The fact that the statement mentioned energy costs having some impact on consumer spending led some to be a bit cautious on the future growth outlook," Jeremy Stretch, senior market strategist at Rabobank, told Reuters.

That caution made it seem less likely that the Fed would increase the pace of its monetary tightening policy, which was a disappointment to currency traders. Higher interest rates generally help the dollar as they make dollar-denominated securities more attractive to foreign investors.

"The market is getting bulled up on the China angle once again and dollar/yen has followed that," Stretch added.

The yen gained strength on lingering talk that China would soon revalue its currency, a move that would likely spark a rally in Asian currencies, which are generally seen as undervalued.

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