Evening star. [volume] (Washington, D.C.) 1854-1972, 1926-06-30
bond PRICES NOW
AT DECADES HIGH
Remarkable Six Months Is
Recorded. in Market.
Weakening Unlikely.
BY GEORGE r. HUGHES.
Dispatch to the Star.


in d decade. 1t has been q remark
able six months in the investment
market. Slowly but surely quotations
have been creeping upward. At times
the rise was interrupted either by an
apparent hardening in money rates,
by diversion of interest to speculative
stocks, or by the competition of new
issues. But all these were temporary
influences soon overcome. Buying
favor shifted, too. from group to group
IN the constant endeavor of investors
to find securities selling out Of line.
but the only result was to bring up
the average
AS to the outlook for the future at
this writing, there Is no sign of any
weakening in current prices. The one
outstanding fact is the abundance OF
capital seeking employment The
opinion widely held is that money is
to remain comparatively easy for an
indefinite period.
Strength of Government Bonds.
Among the many interesting fea.
lures OF the past six months none has
been more significant than the per.
sistent strength in United States Gov.
eminent obligations. Yields on all
Liberty and Treasury bonds have
fallen to low figures. ranging approx
mately from $50 to $50 per cent, the
lower yield on the longer term
coupon rate descriptions. And yet
these low returns have proved no
deterrent to the buying which has
come not only from corporations and
financial institutions but even from
individual investors.
The important factor in this
strength of Government bonds Is the
constantly decreasing supply. This
was emphasized only this month when
the June Is quarterly income tax pay
ment date was passed without any
new Treasury financing. something
which had not happened before since
the war. On these quarterly dates
the Government has always had ma
turtles to be met as we'll as interest
on outstanding bonds to be paid, and
up to this last time 1t has been neces-
sary 70 supplement revenues by fresh
issuea either short.dated or occasion
ally long-term.
Meanwhile outstanding Liberties are
slowly being retired through the sink.
ing fund and preparations are being
made to meet the maturity Of the
third Az Liberties in 1928. as we'll as
to take advantage when a favorable
opportunity presents itself of refund
ing the second Az Liberties, which
become redeemable at the Govern
ment's option next year.
Mellon Keen Judge.
Secretary Mellon has again showed
himself a keen judge of the money
market. In March of this year, just
about the time the speculative cam
paign in stocks was collapsing, the
Secretary offering the first long -term
bond issue since the first Liberty loan,
with coupon rate below 4 per cent,
the new issue being known as the
81 per cent Treasury bond, due 1856.
The offering price was 100h and many
bankers were frankly skeptical about
its success. but the event justified
the Secretary. The Offering was not
only oversubscribed but went to a
premium and has sold there consist
entity ever since, reaching its highest
point this past month.
That investors have no doubts about
the market trend of Government bonds
Is proved by their marked preference
for the longer maturities. They also
favor the lower coupon descriptions.
If there were any chance Of a price
setback the risk would be smaller the
nearer the quotation approaches par
for one reason because foreign cOun-
tries that have entered into funded ar
rangements Of their war Indebtedness
to the United States have the privilege
of making payments in Government
bonds at par and their buying would
serve to support the market around
that price That they will have any
such opportunity, however, now seems
entirely improbable.
Tax.ExemDt Securities,
The situation as to tax-eXempt Sc
curities is interesting. 1t was sup
posed that when the income surtaxes
were lowered it would have an adj
verse effect upon municipal bonds and
other securities which are tax exempt.
This did not prove to be true. The
larger cities were able to do new
financing on just as favorable terms to
themselves as before Federal taxes
were reduced, the high degree of safe
ty compromising for the loss Of a part
Of the advantage from tax exemption.
Along this line the advance to a new
high price for the year in the past
month Of the Liberty 31ss was signifi-
cant. On July l all the other Liber-
ties lose tax exemption except for the
comparatively uunimportant amount of
$1,000 to any one holder. Transfer Of
312s brought about a striking price
appreciation, but the corresponding
selling had no effect upon the taxable
Government bonds.
With regard to corporate obliga-
tons, the only group in which there
has been any sign of wavering was in
those high grade railroad issues COM
monty known as legal" Taking
Atchison general As as a typical bond
in this class, the current price is
on a 4.40 per cent basis. While there
had been predictions earlier in the
year of an advance to q fiat per
cent yield this appeared less likely in
recent weeks.
UtilhAs i'm High Favor.
No such limitation is in sight for
the high-grade utilities. These are
now in higher favor than at any time
since before the war. AS q class public
utilities command a higher investment
rating than at any time in years past.
Slowly but surely they are working
toward a parity with railroad bonds
Of equal rank.
Naturally enough with a generally
advancing bond market and declin-
ing money rates there has been a
good deal of refunding of their obi.
cations by corporations anxious to
take advantage of the situation. One
effect has been to limit the price ad.
vance Of callable issues to approx.
mately the call price. This has been
most evident in the per cent utility
mortgage bonds. Nearly all of these
are redeemable at the option of the
company at around los to say around
lot and investors hesitate to pay
more for them with the possibility Of
having their bonds retired.
Non-callable issues, of which there