Evening star. [volume] (Washington, D.C.) 1854-1972, 1926-02-28
BY GEORGE T. HUGHES.

NEW YORK, February 27.-The ad
vance in the bond market which ha.
been in progress practically without
interruption since the beginning OF
the year has gained momentum the
past four weeks until the average
level is approximately at the higf
point and higher than at any time
in the past nine years.
Few students of investment con
ditions predicted the movement. Look
ing backward, however it is possible
to discern the two underlying causes
first, confidence H. the stability OF
money rates and, second, q slowly
growing belief that the price trend
in commodities over the longer period
is downward. These two fundamentals
logically make for strength in the
bond market.
Government Bonds Strong.
All grades of securities have par.
ticipated in the buying favor. Gov.
eminent bonds have been strong, not
anywhere near the record highs, OF
course, but well above the quotations
prevailing IN the closing months of
last year. The most interesting de.
velopment in this connection was the
buying of Liberty 31as. the one en-
tirely tax exempt issue. 1t has been ex
pected that the prospect of lower sur.
taxes would act to depress the market
Tor tax exempts. but it has not work
ed out that way. State and municipal
ponds OF the higher grade have been
easily absorbed. The buying of the
ether LibertyS was, of course. mostly
by banks and financial institutions
and by few corporations with large
nclp IT.
wished temporary employment.
There will always be a more or less
large demand from this source which
taken with the decreasing supply
brought about by operation of the
legal railway issue became pro.
to hold up the price. There Is nothing
in sight now which would encourage
the expectation that Libertys will &c
below par, or even much below their
present level.
Railway Issues to Front.
The high-grade railways and public
utilities bonds are also around their
postwar record highs. 1t was not
until the second half of February that
the upward movement in the so-called
legal railway issues became pro.
nounced, but at that time there was
a sudden development of interest in
these securities.
Selling as they do on 4.50 to a
4.75 per cent basis, they present no
attractions to the individual investor.
To layman the price appears much
too high. The explanation, of course
is that savings banks must have this
class Of investment. Widening of the
field in which these banks may EN-.
ploy their resources to include the
first mortgage public utility issues
will bring a certain amount of com
petition into this part Of the market.
Other Grades In Favor.
A larger public interest was invited
by the rise in the middle and second
grade bonds. In this group have been
some decided gains. Take, for exam
pie. bonds carrying 6 per cent cOu-
pons, the obligations of corporations
with an improving financial position,
and it will be found that the price
appreciation here has been large and
persistent. In the railway list there
are only q few such per cent is
sues still selling below par. while
bonds such as Missouri Pacific 6s have
had striking advances until the pre-
MUM paid has been substantial. More
discrimination has been shown among
industrials, but the element of specu-
lation has not been absent. The better
demand for the sugar companies
bonds is typical.
Last year, with the exception of the
Porto Rican companies, the sugar
producers had a difficult time. The
price of the commodity was either al
or below the cost of production and
the resulting pessimism was reflected
~ he y-l-af fnN> ha bonds
With the 1925 annual reports out of
the way, however. senior sugar Sc
curities turned definitely upward, in
fiuenced not 50 much by the better
trade outlook as by the high return
the bonds offer.
Money Seeks Outlet Abroad.
In no respect have recent develop
ments been more interesting than In
the Improvement, almost uniform and
sustained, in the foreign field. Prob
ably some of this increased favor to
ward foreign securities is due 10
greater confidence inspired by the rec
Ords of these bonds since the war for
regularity of interest payments and
observance of sinking fund provisions
but In greater degree it has been the
result of the advance in domestic
bonds going so far that investors who
were not satisfied with moderate re-
turn on their money have been forced
to direct their attention to foreign OBJ
legations.
Only In isolated cases have price
movements in the foreign group been
influenced by changes in conditions IN
the countries represented. When any
such influence has made itself felt II
has almost invariably been Of a favor
able character; unfavorable happen
ings have been Ignored.
South American Bonds Attractive.
The South American bonds well H.
lustrate the point. The gradual adj
vance to par and above for such issues
as Montevideo Is, Republic of Bolivia
IS and City of BOgota IS simply
proves that the to 8 per cent return
in the minds of buyers more than
compenSates for whatever FISK there
may be. Doubtless all these bonds and
others In that class have been under
valued in the market long time, but
1t is only recently that the average
purchaser has come 10 realize 1t.
The credit of Uruguay has always
stood high among South American
countries, and there is no good reason
why the obligation of it's chief city
should not be rated correspondence
we'll. Colombia has forged ahead. I'M
til now, from a financial standpoint.
it's condition compares favorably with
that of other nations in the Southern
Financial HiUhIiOht