The New York herald., 1922-01-08
CALLABLE BONDS
ARE LESS SOUGHT
Investors Now Turning to Sc
curities of Fixed Matur-
ity Dates.
THE trained investor always marks

TT HE trained investor always marks
we'll his strategic position. In
this discussion such position has
not to do with the bondholder as creditor
but with circumstances surrounding him
in case the debtor corporation or debtor
government wishes to exercise the op-
tion of redemption whenever interest
rates permit retunding to advantage.
Within every generation there are sew
eral pronounced swings in bond prices
and money market conditions which give
the cue to those keen as to whether or
not they should be on the side OF long
or short maturities. Had holders of
standard and 5 per cent. railroad and
industrial bonds in 1919 sold out COM
pletely and reinvested in and per
cent. two and three year notes they
would have been spared much depre-
citation of capital while increasing their
incomes Only once or twice in a half
century do great political or economic
upheavals occur and compel financing of
the sort that took place in the early
in various per cent. debentures or
bonds offered to the public at substan-
tial discounts, but reserving to the bor-
rover the right to redeem them at sub
sequent datess on terms not unattractive
to the original purchasers.
The problem of selection which nor
mally arises with the investor, namely.
that as between a long term bond or
short term note is duplicated to-day in
the interrogation that arises in the mind
of the averageg person when he has
placed before him a list OF securities
which includes callable bonds with Z and
s per cent. coupons and quoted at pre-
MUM and 4, and 6 per cent. coupon
bonds non-callable and at a discount.
Shall he buy for immediate income or for
the satisfaction of cashing a $40 coupon
semi ANNUALLY or buy for appreciation
of principal and be content with $40
or $25 semi-annual coupon?
Two Camps of Investors.
The army of investors is divided into
two camps, those who first Of all want
! income and secondarily moderate safety
of principal and those who require mod
crate income but expect that their prin-
cipal sums shall be increased as time
goes on and as the law of low money
rates reacts favorably on securities of
fixed interest character. 1t may be said
that the new generation of buyers leans
rather more strongly to the high coupons
and immediate incomes than do those
who have seen the changes and chances
of investment markets over long periods
of years.
Conditions and crises of different sorts
bring certain types of bonds into fashion.
and it was out of the finacial emergencies
of 1921 that the high interest rate call
able bond was born. or rather resur-
rected. as ii had been employed earlier
in American financial history, though
not to an extent comparable to that of
last year in the numbers of issues or
the amounts that they expressed in dol
lars.
Corporations had to shape up securi-
ties which the public would buy. and
that public last spring was rather loath
to buy on the most favorable terms.
Consequently. as discount rates were
61a to Z per cent, the issuing concern
had first of all to attract by a coupon
rate that made a good showing COM
paratively with all other forms of in
vestment, and the era of per cent
bonds came into being. Certain borrow
ers went even further. and agreed to pay
off their obligations at a high premium.
Witness the GoOuyear fNuDDeT ana L ire
per cent of 1871. which are redeemable
as whole at 100. giving the holders of
early called notes fabulous rate of re-
turn. and the Kingdom OF Belgium Z u s
of 1945, redeemed at lis, the latter re-
turning nearly 27A per cent. to those
with the good fortune to have their
notes called within the first year Of is
sue. Such emissions represented the
climax of the high interest rate period.
although there were subsequent in
stances in which the secondary credit of
the borrower compelled him to offer a
high coupon rate bond that could not be
called within the fifteen or twenty years
of its proposed life.
Long Terms Become Popular.
Out of such Developments as have
been indicated above there began to be
an appreciation of advantages and also
disadvantages in the ownership of OBJ
legations which on their face have an at
tractive coupon rate but which. on study
of their clearly drawn indentures. were
found to be subject to retirement pro-
visions. Gradually the enthusiasm for
high coupons that might be called waned
and discrimination began to be shown in