Evening star., 1926-12-05
Low YIELD Marks
STANDARD OIL LOAN
Interesting Feature Not So
Much Size as Small In
come of Bonds.
BY GEORGE T. HUGHES
Special Dispatch 70 The Star

Special Dispatch to The Star
outstanding event in the weeks in.
vestment market was the Offering late
In the week of the Standard OIL of
New York $4,000 900 loan. Coming
as II did just after the Standard Oil
Company of New Jersey had arranged
one Of the largest industrial refund
Ing operations in years, II attracted
widespread attention. The interest
ing feature. however. was not the
size of the loan but the remarkably
Granting the exceptionally high
credit standing of all the Standard
Oil Companies and the phenomenal
strength Of the bond market, it was
still a striking achievement to market
an unsecured obligation at a price to-
yield the investor only a little more
than 4.65 per cent when numerous
high grade utility first mortgage bonds
and few railroad issues can be had
to give a larger income. If this of.
fering is to be arranged in any way
as a forecast of the investment mar
ket in the coming year, prices may
well go above the high marks set
In 1926, which were the highest for
q decade.
Wider Price Spreads.
Comparison with the Standard Oil
of New Jersey loan, which preceded
the New York Standard issue, brings
out the fact that the lower yield
basis on the new bonds is partly
compensated for by the wider spread
between the Offering price and the
redemption price. 1t has been char
acteristic of the market for month
Int
sell a lower coupon rate bond than
a higher one backed by the same Sc
curity IL the buyers believed there
was opportunity with the former for
an advance in market price unlimited
by an arbitrary call price barrier.
1t all goes to show how firmly fixed
in bond buyers minds is the bellei
that still higher prices for prime in
vestment securities are possible.
Whether this longrange view is
correct or not, there is no denying
that the year is closing with invest
ment demand at the peak. The COM
plaint Of the bond houses Is not that
they canot sell bonds but that they
cannot get desirable bonds to sell.
No matter how large the amount OF
new offerings-and this weeks total
of over $500. 100000 was the largest
of the year and compares with $197.-
week ending February 19-they are
all absorbed. For the year to date
the aggregate of new bonds brought
out has gone above the $4,000. .O00, 900
mark. Not all of this, of course,
represents new money; great deal OF
1t is accounted for by refunding op-
erations.
Utilities Increase Demands.
The public utilities have increased
their demands on the market more
than any other one group, which per-
haps explains why the average price |
in this part of the list has not held
up quite as well as elsewhere. Ger |
tainlv it Was not due to anything un |
favorable IN their financial outlook |
for no other class of corporations re. !
ports such consistent increases In |
earnings as do the utilities.
This brings us to the important con-
sideration OF how far a falling on |
In business is likely to affect the mar
ket for fixed interest bearing securi- |
ties. Admitting that the money out |
look is favorable, that commodity |
prices are more apt to decline than |
advance and that there is nothing in |
sight to check the upward drift in the |
highest grade bonds, there is still a !
question about the future of funded |
obligations with a junior claim on |
earnings.
Two opposing forces are at work |
enc, the narrowing price spread which |
always takes place between first and |
eecond grade securities in any broad |
upward movement, and the other the |
lower margin of safety which must |
necessarily accompany any setback In |
trade, and so far only the first of these |
factors is operative in the market. |
The truth of this assertion may be |
found in the way the market for jun |
ior railroad bonds ignored the de- |
cision of the arbitrators raising wages |
A severer test will come when month |
ty earnings statements no longer |
make the favorable comparison with |
those of the preceding year that they |
have been doing for so long.
No Change in Money
There has been no change in the
money situation during the week. |
The relaxation in rates for call loans
was only what usually happens after
the end of the month requirements
are filled. The small drop in the re-
serve ratio of the Federal Reserve
System is not important either. 1t
is still well above the figure for the
corresponding week of 1925. Com !
modify prices on the average are lit
tie changed. There has been a small
gold importation from Great Britain, |
but It is not likely TO be repeated.
For the year to date the United States
unlike the condition of 1925, has been
an importer of gold on balance.
Foreign dollar bands continue to sell
around the best prices of the year.
More interest was shown in the
French and Belgian obligations than
In any other, which is natural enough
considering ,hc fact that the French
franc this week touched the highest
point of 1926. and that the Belgian
stabilization plans appears to be work
Ing well. The market indicates there
is still doubt about the Italian out
look. 1t remains to be seen whether
Mussolini can impose his will as ef-