The New York herald. [volume] (New York [N.Y.]) 1840-1920, 1878-01-30

cents. $3.50. loex a X 1857 1osK los 1857
cents 80. 1861 losx lo4X lO4 lo4,l
The decline here exhibited, which is the
result OF mere apprehension and uncertain
ty, will be followed by larger decline if the
veto. from which a great deal is hoped,
should not prove effectual: But still it will
be less than may be expected by persons
who have not yet given much thought to the
subject. We think we can explain very
clearly both why the bonds will fall less
than is apprehended and why pretty fair
maintenance OF their price will not protect
the country from heavy losses.
As starting point for our reasoning we
lay it down as an axiom which nobody will
think Of disputing that when the bonds OF
solvent government bsar high rate Of in
terest their market value is enhanced by the
length Of time they have to run. We can
not better illustrate this than by reference
to the foregoing London quotations for
Monday. Why is it that our ten-forty
FIVE per cent bonds were selling at
higher price than our five-twenty
six per cent bonds? This stock exchange
fact looks very much like financial para
dox. It seems odd enough at first view
that the Ave per cent bonds Of the same
government should be selling in the same
market on the same day for two and a half
per cent more than its six per cent bonds.
the price Of the fives having been 100 "a
and Of the skies only 107 IA The puzzle
might seem greater from the fact that both
classes of bonds are redeemable at the
pleasure Of the government, the five years OF
the fve-twenty bonds and the ten years Of
the ten-forty bonds having alike expired.
But the puzzle is explained by the well
founded expectation that the eh-forty bonds
will not be called in until after the fve-
twenties, of which the amount is very
large, shall have been redeemed. 1t
is for the advantage of the government to
get rid of paying six per cent interest be-
fore it releases itself from paying five per
cent interest, and it is therefore concluded
that the ten-forties will run for longer
period than the 6ve-twenties. It is for
this reason that they command higher
price in the market. 1t is for similar
are made redeemable at distant date, the
length of time being a partial compensa-
ton for the low rate of interest.
We have dwelt on this point not by way
of proof, for it needed none, but for the
sake of illustration, to render the argument
which follows more ineligible. If it were
made certain that the fve-twenty bonds
would run for the full twenty years and the
ten-forty bonds for the full forty years, the
price of both would be Immediately en-.
HANGED in the market. Now, the passage of
the Silver bill will operate precisely in that
direction. BY putting an utter stop to the
sale Of the four per cent bonds it will de-
prive the government Of the means of re-
deeming the skies and fves now out, and
insure to their holders these high rates Of
interest for long period to come. If the
sale of the four per cent bonds had not
been arrested the process of refunding
might have been rapid. and the creditors to
whom the government is paying six per
cent interest would soon have been CON-
PEELED to accept lower rate or seek new
investments. But if the Silver bill becomes
law they will have secure hold on their
exorbitant interest for al indefinite period.
1t is. therefore, evident that the heavy loss
caused by the silver swindle will fall more
heavily on the government than on its pres
ent creditors.
To make this still palmer let us sup
pose case. A capitalist holds 100000
of our fve-twenty bonds, which he
might have been compelled TO sur
render Immediately if the sale of the
! four per cent bonds had gone on without
| interruption. In consequence of the pas
sage of the Silver bill he is enabled to re-
tain these bonds, say ten years longer,
making gain of two per cent per annum,
amounting in the ten years without COM
pounding the interesO TO 500, 0O0 This is
what he gains by the passage of the Silver
bill but there is q per contra He will
lose (reckoning the silver dollar to he
worth ninety cents) one-tenth of his prin-
cipal and one-tenth of his six per cent in
terest, amounting in all to SIC, 600 SIC, 0CO
of principal and $4,000 of interest. But
there still remains balance Of $4,000 in
his favor, which accrues to him by the op.
Grafton of the Silver bill. OF course he can.
not be certain that his six per cent bonds
will continue to run for SO long period as
ten years, nor can lie be certain that the
government which has repudiated one-tentl
OF its debt will not repudiate larger pro-
portion, and the destruction Of confidenc,
will have a further depreciating effect or
his bonds, so that he would be on the whole
loser. 1t is quite certain that the govern
ment would be q loser, since the excessiv,
rate Of interest it would continue to pay
would be only partially Offset by its gain,
in cheating its creditors.
We trust we have made it evident why tn,
outstanding bonds will not Immediately de