Evening star., 1925-03-01
future Of BONDS
HINGES ON MONEY
Home Trade, Gold Glow, Ex-
change and New Issues
| Being Watched.
BY GEORGE II. HUGHES.

Special Dispatch to The Star.
NEW YORK, February 2S.-A mode
rate reaction in high-grade bonds
noticeable more particularly in United
States Government loans was the re-
heCtion In the investment market of
the action of the New York Federal
Reserve Bank Thursday in raising
fits rediscount rate from to 3h
per cent. No great amount OF bonds
anne out on the decline and for the
Epost part the rise in the bank rate
appeared to have been pretty we'll
discounted. Money was trihe nrmer
tn Friday, but here, too, the change
was very slight.
Future Depends on Money.
As to the future, everything depends
upon the demand for funds for COM
nnercial purposes. The outward now
of gold has been checked, or rather Is
proceeding at a much slower rate.
Sterling exchange Is lower and there
has been a let-up ih the amount of
foreign financing in this market. 1t
IS possible, If not probable, that the
near future may see an actual re-
versal In the gold movement. These
Influences would work toward hold
sng down money rates.
OF course, IL the Bank OF England
Taises its rate as Is expected In some
quarters this may strengthen sterling
again. All of which brings US back TO
the domestic business outlook. As to
Mat the statements of the FEDERAL
Reserve banks for the next few weeks
will be carefully watched to see whether
the increase in rediscounts which was
she feature of the New York bank
statement keeps up
Little Eject ON Prices
This matter of the effect of money
rates on investment prices is not OF
as much importance TO the average
individual investors as is geheraliy
believed. 1t affects, for the most part,
financial institutions, such as banks
and insurance companies, which are
forced to keep their funds in Sc
curities of the very highest grade.
There are undoubtedly many holders
of liberty bonds among people OF
small means, but to them minor Narl-
ations in market prices mean little.
Those who require this high degree OF
safety need pay no attention TO the
market.
The larger number of small investors
who hold obligations of railroads. pub
i6 utilities or industrials which return
20 them from 5l2 per cent upward VIII
find that the prevailing quotations for
their bonds depends more upon the pros
pect for the particular company repre-
scented than it does upon the ups ana
downs of interest rates. If. then, the in
dustrial outlook is improving as II
seems to be, and as the increasing de-
nand for funds upon the banks would
indicate, there is no reason why in
vestors of this kind should be disturbed.
Bonds Near 1:-Year Peak.
It is true that the average of bond
prices is about at the peak of the last
half f-doZen years, and that it does not
seem probable that this advance can go
much further. But that, again, is a mat
der of primary interest to the specula-
TOR, and not to the investor. When it
comes to the subject of selecting securi-
ties for new funds different attitude
may properly be adopted. In the ordi-
nary course of events high prices for
bonds divert money into junior obliga-
Gons. OF these common stocks are now
also around the highest prices in recent
years As TO the future of that section
of the market, IL is not within the prov
ince Of this article to express an opinion.
1t may be pointed out, however that
midway between the investment con-
eervatism of the bonds and the specu-
lative attraction Of the common stocks
come the preferred stocks combining
qualities of both. And there are still
very many preferred issues which have
not shared the market advance enjoyed
by. both common stocks and bonds The
reason for this is simply that the pre-
ferred stock Is not safe enough for the
cautious investor, and yet lacks the pos
sibilities Of price appreciation that in
terest the specuator
Rail Earnings Encouraging.
Railroad earnings statements for Janu-
sry so far reported make encourag-
ing showings. The probabilities are
that the majority of the companies/
will report better results this Janu<
airy than last. Rumors are heard g
additions to the list of dividend pay
ers on common stocks. Present divi-
dend rates are in nearly every case
amply protected by earnings and in
no instance Is there any expectation
or decrease in the prevailing dis
bursement to shareholders. Con-
solidation talk is still in the air and
the ambitious Nickel Plate merger
plan has been formally presented to
the. Interstate Commerce Commission.
Cnaf this combination Is approved. If
It IS, new projects in other sections
wifi be pressed for consideration.
Ut Is 9t at all likely that the
larger NIL ouri Pacific system will be
allowed t. do business without a
competitor. Adjournment of Con-
sress will put an end, for the pres
ent at least, to apprehension on tn
score of hostile legislation. Provided
only that traffic keeps up, owners of
railroad securities have little cause
for concern. The case of the St Paul,
which is still in doubt, is not typical
Of thR railroad situation rr-boIo