New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1916-12-10
Approaching Our Own

In the whole field of domestic
finance there is nothing more inter-
esting than the rise that is taking
place in the very giltest-edged Ameri-
can railroad and municipal bonds.
One might have thought that the
effect Of placing British and French
short-term loans in this country to
Weld 90. to per cent would be to
depress the market for American
railroad and municipal bonds yield
ing only 4 to Az per cent. One
might think, also, that the ex-
pectancy of a higher prevailing rate
Of interest for long-term loans, up
to 6, 612 or even per cent, in con-
sequence of funding a billion or two
of the short-term loans of foreign
governments into long-dated bonds
would cause investors very generally
to withhold their money from the
low Understanding long-term bonds
of American cities and corporations.
But, to take a notable instance, New
York City bonds have been rising
steadily, and the yield is now less
than a per cent. The choicest rail-
road bonds have been rising at the
same time, because of an unexpected
demand for them at prices to yield
only 4, Az and Az per cent. There
are several explanations. One is the
paradox Of human preference for
the thing that is relatively scarce.
There has been an enormous output
of foreign loans, while at the same
time there has been only a nominal
increase in the supply of new domes-
tic bonds. The foreign loans are
safe enough. Some Of them are Sc
cured by the very best American Sc
curities as collateral. Nevertheless,
the very abundance of foreign loans
causes q certain increase of demand
for domestic bonds. Then there is
the necessity Of finding investment
for enormous profits suddenly de-
rived from the war trade. lndlvldu-
ais and corporations have come un-
expectedly into possession of great
wealth. 1t is natural when wealth
comes to you suddenly to think OF
putting it where robbers cannot
break through and steal, where the
moth does not browse and where
rust will not corrode. It cannot be
made too safe. The safety of the
principal is more important than the
rate of interest. The lower the rate
of interest, in fact, the higher the
factor of safety is commonly sup
posed to be. A man who makes
money rashly and rapidly in specula-
ton will, if he has time, die with an
estate in low interest bearing first
mortgage bonds. Thirdly, is the in
telligent desire for diversity. In
vestments ought to be spread among
a number of things. One may al
ready have a large amount of high
interest bearing foreign loans and
be, for that reason, all the more
willing to invest the remainder of
his surplus in domestic bonds, ire
spective of the fact that they yield
less interest. The high yield of the
foreign loans will make up for the
low yield of domestic bonds and
bring a fair average. Just this
marginal demand for American rail-
road and municipal bonds, falling
upon a supply that has not recently
been increased, would cause prices
to rise. Lastly, there is the feeling
that with so much uncertainty as to
financial phenomena to come, one
will be very comfortable in the gilt
edged b&ds of American railroads,
which, after all, are the best invest
ments in the whole world.