The New York herald., 1922-01-05
Prices Of Issues Of States and
Divisions of States Lifted
Substantially in 1921.
ADVANCE PR0PoRTI0NATE
Increased Supply Due to I'm
dertakings, Delayed by War
and High Costs.
by HOWARD BEEBE,

ef Harris, Forbes Co., president Of the
4 Investment Bankers Assoctdtton.
tn ETWEEN the beginning of 1921
ID and its close there has been a
substantial increase in prices OF
municipal bonds ofgvarious grades. The
term municipal is used herein broadly
70 include State, county, municipal and
other political subdivisions of States
and not technically. which would apply
only to regularly organized municipali-
ties. The price increase has been re-
fiected in a decreased average net re-
turn Of about 7-10 per cent to Investors.
In making that calculation short term
loans and bonds. not truly municipal
bonds but payable from special benefit
assessment taxes only, have been elimi-
mated, and bonds having five, years ma
turity or longer OF the various grades
have been used. That increase in price
has resulted naturally in the feeling that
there is a question as to whether the
prices attained wilE be maintained. 1t
Is. most interesting to note by referring
TO the conditions of the .marlset at the
close of 1919 and at the beginning of
1920 that there was a. sharp recession In
price during 1920 and that the level OF
prices attained at the close of 1921 was
not much above that existing at the be-
ginning of 1920. Furthermore compari-
sons with market values of representa-
tive issues CT steam railroad and public
utility securities will show that the adj
vance during the last year on municipal
bonds has been proportlonate to that of
the other classes of securities.
The advance in pTfcs has taken place
In the face of a large supply of new
bonds, not caused byEextravagant financ-
ing by municipalities, as many people
apparently believe. During the active
xt-
except Of the most urgent kind, We're
discouraged generally. and at the dosc
OF the war prices OF material and LABOR
had reached sucn a point that munich
pal officials very wisely delayed making
needed improvements even in many
cases. such as school facilities. where
laws were mandatory in recurring that
additions and improvements be made.
1t was therefore natural with lowering
costs that such work should be pro-
eeeded with.
Many Road Bonds Issued.
On the other hand great many road
bonds have been issued, and, in some
cases States and counties have rushed
into that type OF Improvement without
due consideration of all factors involved.
Bonds issued to obtain funds to pay
bonuses to soldiers have aggregated
large amount and can hardly be justified
on grounds other than that of political
expediency. Although several States no
doubt will issue soldier bonus obliga-
tions, their aggregate amount will be
much smaller than those that have come
out during the last year
The power of the market to absorb
the large supply of bonds which has
been put out has no doubt been aug
mented by buying for account of in-
vestors whose income rs sufficiently
large to bring tleir incomes up among
the topmost surtax ieyelss 80 II the Con-
gress In passing the new income tax law
had seen fit to reduee the unreasonabfv
high surtax levels no doubt 1t would
have tended to curtail that type Of buy
ing and 1t is likely that advances In
prices would have been less abrupt. On
the other hand there has been very
large volume Of purchasing for account
of those satisfied with. incomes which
municipal bonds have Rafforded at cur
rent price levels and prefer them from
the standpoint of character of security
TO any other type OF investment which
may be made. Largo financial invest
ment institutions alss have been a factor
during the year. and in the aggregate
have absorbed considerable percent
age of new emissionsff r, =
The new year opens with larger sup
ply Of municipal bonds ,kn the hands of
dealers than they have had for long
time, but with evidence that new bonds
TO come on the market soon VIII be in
considerably smaller volume than they
were in any corresponding portion OF the
two preceding years. The consensus OF
opinion among banks OF deposit and dis
count is evidently that rates for money
will rule lower in the coming year than
they have for several years. III such Is
the case the great disparity In yield on
the shorter dates Of municipal bonds and
the longer maturities will disappear
gradually; in fact. that tendency wac
very pronounced during the latter part
of 1921. Even where funds are accumu-
lating In the hands of corporations
which are not subject TO the graduated
income tax rates under the new law.
easier conditions In the money market
would tend TO be reflected in higher
rrfces. Short rna:urities should be afr
fected. particularly inasrnuch as they
nre regarded generally as more suitable
for bank investment and for other funds
which are not expected to remain In
vested In securitie. indefinitely.
Income Tax Problem.
The introduction into the Congress Of
m bill providing for an amendment to
the United States Constitution which
would permit the Federal Government 20
tax the in-5crne Of future Issues or state
and nun iofDai bonds has caused consid-
cradle comment 1t seems 10 be geneT-
ally appreciated by investors that there
are great difficulties IN the way Of the
final adoption of sny such amendment
and. therefore. there has been no par
tIct.iar stirnulation 81 prices which would
have occurred II sny large number OF
investors had assumed that the supply
of securities exempt from Federal in
come taxes vsr - be suddenly stopped.
The writer believes that there will be
great difficulty in getting the fequired
number OF States 20 approve its adoption
I'm the proposed form inaamuch as it's
reciprocal provisions would benefit only
those States which have or are willing
70 put into effect general income tax
laws There are unmistakable evidences
that the States do not wish 20 confer
on the Federal Government additional
power which might interfere with their
own rights, and such a change as con-
fernpiated might In emergency condi-
tions be so employed by the Federal
Covernment as 10 make It well nigh i'm
possible for the States to handle their
own financial problems. During the last
year In the annual meeting Of the most
Representative association IN the United
states OF financial officers Of munich
palities, the subject was discussed at
length, and that body went unanimously
on record against the approval Of such
n constitutional amendment. The writer
NeSieves that with reduction Of individ-