Evening star., 1925-11-15
BANKS ARE BUYERS
/ IN BOND MARKET
Action Based on Merits of
Certain Rail Issues as
i Investments.
BY GEORGE It. HUGHES.

Special Dispatch to The Star.
NEW YORK, November 1.-THE
Improvement in the bond market that
started the first of the month has
been carried further this week and
the demand has extended over n
wider range of securities. 1t is true
that directly after the raise in the
rediscount rate of the Boston Fed
eral Reserve Bank and the slump in
the stack market which followed
there was Wavering in the bond
prices, but that was corrected later
and the comparatively trivial losses
more than pegained
The significant point about the
puylng this week was that securities
IN demand included the underlying
mems of standard railroads, bonds
with little or no speculative attrac-
uon under ordinary circumstances
ana generally bought purely on their
investment merits
Banks Heavy Buyers.
The fact that this buying was
initiated by banking interests. rather
than by individual investors. in no
way detracts from its Importance,
for we'll informed bankers do not
accumulate securities of this grade
unless they are satisfied that under
lying investment conditions are
sound and that the chances favor
appreciation If market price. What
this means, of course, is that there
Is no longer concern over the money
outlook
AS to money, the important devel-
opment of the week was the raise
In the Boston bank rate already re-
ferred to. This Immediately started
discussion as to the New York bank
making similar move. but the dis
cuSSion Subsided when it was an
nounced after the weekly meeting Of
the New York bank directors that
there had been no change
Whatever the future may develop
IN respect to the rediscount rates Of
the various Federal Reserve Banks, 1t
cannot be said that 4 per cent is
high anywhere. AS it stands now
all the Federal Reserve Banks except
the New York. Philadelphia. Cleve-
land and San Francisco institutions
charge per cent on rediscounts and
II that We're to become the uniform
rate for the system it would not be
anything to become disturbed about.
Money Appears Steady.
But there is nothing in the weekly
statement of the Federal Reserve
Banks as a whole or Of the New
ork bank in particular to indicate
that money is going any higher. For
the system there was a decrease of
SE1,7OO,O0O in discounted bills and a
rise in the reserve ratio from II 5
per cent a week ago to 1928 per cent.
The New York bank reported a droo
In discounted bills of S3S, 100000 and
q rise in the reserve ratio from 81 g
per cent to S2.4 per cent. In reality.
this Is a position of extraordinary
strength. Moreover, the season Of
greatest demand on the money supply
ior commercial purposes is over now
until the beginning of the new wear
and while stock market and real
estate speculations absorb large
amounts, so far this has made little
Impression.
There is just one thing that might
change the outlook. and that is a flood
or new security offerings In recent
months fresh financing has been on a
small scale, but this might easily
change. and if it does the whole sub.
1ect may have to be re.examined.
So much for the securities which
respond with variations in money
rates. With regard to those depend-
ent for their current valuation on
earnings. good deal of discrimination
Is in order.
Much Care Is Needed.
Idhc lIS IdllIOdu llSl, IOr instance,
If prevailing prices for dividend-pa
Ing railway stocks are considered on
a yield basis it will be found that in
many cases the return to the investor
is becoming small compared with that
TO be had from bonds and preferred
stocks. There are, of course, eXcer
tions, and this is a matter with which
spectators are not in the least con.
cerned, but it is one which investors
cannot afford to overlook.
What the railroads would like to
do is to be able to raise new money
by selling common stock. To do this
they must offer the shares at prices
to show satisfactory returns to the
investor, even If he is convinced that
railroad stocks have once more
reached an investment status. This
necessity of making prices and yields
attractive may lead to some dividend
increases, which, of course, would
Justify recent prce advances. But the
number of railroads in a position to
pay larger dividends is limited
There is not much new to say about
the foreign situation. Market prices
for foreign dollar bonds have been
well maintained all week and the aver.
age is around the high of the year
The upward movement, however,
seems to have halted for the present
The great deterrent to confidence is
the French situation.
Copyright. 1925l