The Washington herald., 1914-02-21
WHY THE BOND
MARKET RAN AWAY

lCopyrisht. 1914 By C #. KEYS. New Tork-l
In December there was a soft. thin
market in bonds in all the big cities OF
the United states. The New York mar
kct. which is the biggest market Of this
sort. saw dropping prices. The transac-
tions were very small, and almost all
the low records of December were made
in sales of one, two, or three bonds at a
time. Nobody seemed to want bonds,
but nobody seemed to be selling very
many Of them. 1t was what is technical
" called a thin market.
In January, all OF a sudden. something
started people buying bonds. The de-
mand in some cases was urgent and ap-
parently without regard to price. In
three weeks time almost all the standard
bonds in which the market deals ran up
to prices that were almost as good as
their best prices at which these bonds
sold last year. or at any rate. during the
last nine months OF last year. II is in
teresting to observe the causes that led
to this sudden outburst OF buying. some
of il urgent in its character.
The first cause. of course, was the thin
ness Of the market. Any market,
whether it be in cattle. dry goods, gro
ceries, stocks. bonds. or any other fiuctu-
ating commodity. is in position to be
advanced in price very sharply and very
quickly il a sudden demand springs up on
top of a thin little market where the
prices were going down and small offer
inSs Tho offerings ar" not likely TO in
crease suddenly at 4 time when a new
demand comes into the market. On the
contrary. the offerings arc likely TO nc
found lighter in the face of a good de-
mand than they arc at time of no dc
mand or a very small one. This technical
condition explains pretty well the very
quick recovery when the demand came
into the bond market in January.
1t does. however. explain why the de-
nand came There was no demand N
1915. because all over the world men were
borrowing money and boarding money
to look out for what they considered 10
he dangerous and critical occasions in
the near future. The great losses OF the
Balkan war had to be met and a great
deal of floating debt in the form of short
obligations piled up by American indus
trials and railways also had to be liqui-
dated. Everybody knows that there Is
something over a billion dollars of debt
that has to lie I'D this year. All
through 1913, when mems minds were
doubtful and things looked uncertain. this
great mass Of debt that has to be paid
acted as a detriment. SO that men were
not anxious to tie up money in long
term Investments, because they figure
that they might be able to use it much
more profitably in the future
The Balkan debts have not as yet been
paid, nor have the railways and other
great companies in this country financed
their needs. 1t became apparent early
in January, however. that unduly large
preparations had been made for these
and other contingencies, SO that the big
banks of the world were full Of money
TO lend and were not finding il easy to
Face II at high rates. 1t became evident
liz fact. that there was more money than
there was demand for money, Conse-
quently the borrowing rates dropped
quite suddenly and institutions which
had been lending profitably on short OBJ
legations were driven to become buyers
Of long-term bonds and other debts OF
this sort.
Hence came the first demand. The pub
lie always follows quickly when such
demand springs up, and in this case nun
oreds Of people who had money lying
IDLE in the banks because they were
afraid to buy anything came into the
markets and bid eagerly for bonds at
prices much higher than the prices oil
the fall. There is the genesis OF a strong
bond market II was the suddenly in
creased demand meeting a supply that.
small at its best. dwindled rapidly as the
demand increased. II resulted in quick
and disconcertinS rally as much as -four
or five per cent in good old seasoned
bonds that mad hardly ever in their his
tory fiuctuated as much as four or nVs