New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1917-11-17

uninteresting session on the STOCK
Exchange. The 31a per cent bonds
sold at 9S.74 early in the day and
closed at 80. The per cents opened
at 80 and closed at 1914. thus ex'
actly reversing the relative price
position. The immediate cause Of
the decline in the second issue Is
probably to be found in forced sales
by those who subscribed more thar
they could pay for or carry, and who
therefore were compelled to dispose
of part of their allotments when the
IS per cent payment became due
II will 81 remembered that the same
thing happened TO the first issue
though OF course selling Of that nat
ure is no longer a factor in the mar
ket for the 315s. But entirely aside
from the special conditions which
caused the crossing of prices yester-
day, it would not be surprising II the
3Iss were to remain on higher level
than the Is. At any rate the dis
parity in yields is quite certain To
continue for several reasons. The
situation has been analysed by c. F.
Childs & Co., government bond spe-
cialists. Explaining why it is un'
likely that the 31ks will suffer any
material decline this firm says:
The particular attraction for the
8iss is the opportunity they afford
an individual TO svoid disclosing his
wealth. The income from these
bonds need not be included in ones
annual income tax return. In conse-
quence, the SIS will always be
selected by those individuals desir-
ing to secrete some portion OF their
income and wealth. The income from
the Liberty Loan As by contrast must
be scheduled in ones income tax re-
turn, but no accompanying ownership
certificate is required from holders
Of either 81ts or Is In connection
With the payment Of interest eou-
pons. The possessor of SIS virtually
adds no sum 10 his income which rs
declsrsble for taxes. but the pos
SCISSOR Of the Is creates known In
crease TO his taxable income and
thereby raises his total taxes. Owing
to the above distinctions, the market
for the SIS should continue to be
supported by those investors for
whom the u per cent differences in
the interest rate would not be an
adequate Offset TO the benefits they
would receive from being free from
taxation.
A teehnieality which is apt 10
prove q conspicuous support to the
ga per cent market is the generous
conversion privilege attached to the
bond. The holder Of the "a per cent
bond virtually has a continuing OPP
portunity to convert into any bond
bearing a higher rate Of interest
that may be issued during the war.
The 3hs have the same conversion
privilege as that attached to the new
"a. with the added advantage of
being convertible into any succeed
ing higher rate issue, the Is being
convertible only into the next sue
ceeding higher rate issue. In each
case Of conversion. the maturity date
Of ones initial bond purchase will
be affixed to whatever bond he con-
verts into, irrespective of the ma
turity Of the new issue.
Therefore, during the prescribed
period Of time when it Is permitted
20 convert the 3hs into Is, or any
other issue which may become avail
able, 1t is obvious that should II be
possible TO purchase 8hs at 9 dis
count, the buyer is virtually purehss-
ing a call or option upon the Is, or
any other higher rate bond. Nat
urally, therefore, a conspicuous in
consistency is presented when 1t Is
possible for an investor TO buy the
gas at a discount. with the idea OF
later acquiring Is through the con-
version operation while he could not
purchase the Is direct from the gov
eminent unless he subscribed for
them at q price Of 100. Nothing
short Of the purest patriotism would
prompt a subscription for Is at 100
when II was possible 70 acquire the
Is at q discount By purchasing 3hs
for conversion at price below 100.
Az long as the war continues and
opportunities exist TO convert into
new issues Of bonds bearing rates
Of interest above 3h per cent, it is
perfectly apparent the market value
Another thing which will tend Il
sustain the price Of the 3h per cent
issue is the probability of heavier
taxation. At present only those with
incomes exceeding 100000 annually
find 1t more advantageous TO buy tn,
3iss than the as, but If income Ia,
rates should go up the demand fol-
tire tax exempt bonds will rise cor
respondingly. Meanwhile, the suppl,
will tend TO decrease through CONVEX
sion. Indications are that 10 pei
cent, and perhaps more, Of the 81,