Evening star. [volume] (Washington, D.C.) 1854-1972, 1926-12-31

cial structure was m .j&
disrupted by the sAs.sss
outbreak of world @A'-'>'-''SS go
hostilities. ,,,,
The low point
IN the cycle. SO far rs bonds are con
cefned, was reached in MAY. 1920, lust
when commodity prices touched the
peak of "A generation. The ensuing re-
covery did not get well under way un-
Ill the middle Of 1921, but there there
was prolonged rise lasting approx
nlateiy q year, after which there was
mild reaction. and then a new ad-
vance beginning i'll the second half of
1928 and continuing with only minor
interruptions right up to the present
time.
The feature of the rise this year
was It's uniform character. the way in
which demand persisted regardless of
the violent fluctuations in the stock
market. While there was. of course.
from time TO time. slight Setbacks.
tnere was never any real let-up in the
inquiry for high grade investments or
any sign of doubt as to the eSsentia !
stability of the market There is no
better illustration of this than the way
IN which the last long term United
states Government financing was ac-
complished in March of this year. lust
at the time the speculative campaign
IN stocks was collapsing
The Secretary of the Treasury an
nounced this new Offering in the very
week that the stock market was break
ing after its prolonged advance. The
new bonds, carrying a 334 per cent
coupon, which was a lower interest
rate than any long-term Offering by
the United States since the first Lib
erty loan 3 y S in 1917. were offered at
lOO12 to the amount of $500. 900 900
ana were at once oversubscribed by
Sl0O000,000. They never sold there
after more than IL below the Offering
. price, and that in small amount and
Tor only brief time. while today they
are quoted at premium of something
Ike points and on a yield basis of
not much above $50 per cent Com
parison with the Liberty 31@s is unfair
TO the new bonds. unless it be remem-
bered that the former are entirely tax
exempt, whereas the latter are not.
Other L. S. Issues Soar.
Z In the months that followed the
marketing of the Treasury 3$4s. the
TWO other Treasury issues, the 4L S of
| 1947-52 AMI the As of 1944-54. went to
new record high prices The older
Asiberty loans were in brisk demand all
year, but they did not reach the record
highs of 1924 and 1925, and the reason
Tor the greater favor shown toward
the Treasury bonds over the Liberties
was, simply that investors wanted the
bond with the longest term to run.
This in itself was an expression of
confidence in the future of investment
values, otherwise the nearer maturi-
ties would have had the preference.
Even those investors who were not
quite convinced that the long. term
trend of corporate bonds was upward
were willing to admit that there was
no prospect of any material shading
OF prices for United States Govern
ment securities, no matter what
might happen elsewhere in the mar.
ket- The fact that the outstanding
supply was constantly diminishing
through operation of the sinking
fund and that the Government seemed
able TO accomplish it's financing at pro.
excessively lower rates was very i'm.
pressiye.
The upward movement in corpora
tion bonds paralleled that in Govern
: ment issues. The average was at the
low in January and it reached the top
IN November and December When
ever there was a pause in the advance
It was short and due principally to
realizing sales. There was never any
real abatement of the investment de-
lnand. 1t did have this distinction,
however, from the market of other
Years - the gains We're more pro-
Tounced in the high-grade public util-
ity obligations than in the old-line
first mortgage rails.
The progress made by the electric
light and power companies, as testi-
ned to by their earning statements,
was chiefly responsible for this turn.
ing toward utility issues. and the re-
suit WAS a narrowing of the spread in
price between the best secured obliga-
lions in this and in the railway field.
Another influence was the broader at.
fttude taken toward public utility in.
vestments by various State Legisla-
lures. Massachusetts, for instance,
made public utility bonds that meet
certain rigid requirements legal in
vestments for savings banks in that
State. A similar movement i'm New
York failed, but it's promoters believe
inc setback is only temporary.
Refunding Operations.
The utilities and their bankers were
not slow TO taken advantage of this
new situation as q basis for refunding
operations. In January the Common
wealth Edison Co. Of Chicago sold
tl3,OOO,O00 IN mortgage bonds with
first time since the World War that a
iong-term utility obligation had been
put out at SO low "A rate. In May the
New England Telephone & Tele.
graph financed it's requirements also
with Az per cent bond issue, and in
both instances the offerings were read
lily absorbed. Later in the year there
were other issues Of this kind. and as
the period drew to "a close no first
mortgage bond of an old established
pubic utility operating company could
he purchased at a price TO Yield the in
Nestor 5 per cent.
The rise in seasoned bonds. both util.
tlics and railroads. brought into promi-
nence the importance of the redemp-
ton price as a bar to further appre-
citation in the case of the higher cou-
pom descriptions. A 6 per cent mort
gage bond callable. say. at 07l2 could
not very well sell much above that
price, no matter how well secured by
property value or how well protected
by earnings, simply because investors
were always afraid that the corpora
ton would exercise the redemption
privilege under money market condi-
tons such as existed during most of
1925