Evening star., 1926-03-07
REACTION IN BONDS
CAUSED BY STOCKS
Fundamental Conditions Are
Declared Unchanged by
Weeks Events.
BY GEORGE L. HUGHES.


Special Dispatch to The Star.
NEW YORK, March 6.-The re
action in the bond market this week
was entirely in sympathy with the
collapse in stocks and not from any
change in fundamental investment
conditions.
Some of the selling came from
spectators who were obliged to sac
rif1ce sound investments in order to
support their position in more ques'
tionable securities. Buyers, on the
other hand. lowered their bids antici-
pating just what happened and eX.
pecting, reasonably enough, to NIL
their requirements at lower price.
The losses were fairly uniform
throughout the list when the selling
was at its height, but the subsequent
recovery was most pronounced in
the high grade issues and in those
speculative rails which had been in
nuenced by the adverse Nickel Plate
merger decision Now that the eX-
citement has died down, II Is reason
able to expect that normal conditions
will be restored in the investment
market and that attention will again
he centered on values.
Views OH Rail Bonds.
rs lar as the GdliTOlu
are concerned, the change in senti-
ment is u welcome one. No matter
what may have been true of stocks,
there was never any reason for con-
sidering railway boEds other than on
their security and earning protection.
Inc idea that this or that merger
was going to raise the investment
rating Of low-priced railway bonds
never had any but a Shadowy founda-
ton.
Take the Erie obligations, for In
stance, the Junior issues OF Which
lost as much as points In Wednes'
day's trading. Probably the sellers
had vague notion that II the Nickel
Plate merger did not go through, the
bonds were less valuable. From an
investment standpoint, nothing could
be more absurd. The Erie has an
enormously large funding debt, but IN
recent years has displayed sustained
earning power and the bonds nave
appreciated accordingly.
Nothing that occurred during the
week in any way changes that value.
If the proposed new company had
planned to guarantee the bonds or It's
subsidiaries there might have been
some excuse for disappointment at
the failure of the plan; but even so,
il is never sound investment practice
TO buy bonds on guarantees. An In
vestment security ought to stand on
It's own feet.
1926 Railroad Outlook.
Now, mergers aside, what is the
railway outlook? In the first place,
car loadings are satisfactory. The re-
port for the week ending February 20,
the latest available, showed an IN
crease over the corresponding weeks
in both 1925 and in 1924. 1t is also
an increase over the preceding weel
in 1926. The anthracite coal strike
is ended, and the hard coal carriers
on the Eastern seaboard may soon ex.
pect normal traffic. Earnings state
ments for January in the main are
favorable.
Progress has been made toward
checking the loss of passenger reve.
nue.. 1t is hardly to be expected tha
the railroads will ever get back the
short haul passenger travel which
they have lost, but at least the situa-
ton is not becoming any worse. There
remain the matters of wage demands
and of rate readjustments. Investors
as well as spectators have to take
into account all these things, but as
long as they found their commitments
the merger phantom they are not
likely to go far wrong.
Meanwhile the outlook for good
bonds is just as bright as it has bee,
at any time this year. There wi
probably be some increased demand
for money for commercial purpose
as Spring advances, but there Is ais
apt to be a certain amount of fund
released from speculation. No hare
ening in money rates sufficient ad
versely to affect bonds is in sight.
Commodities Are Lower.
On the other hand, commodity
prices are lower. All the index num-
bers agree on this. The average is
now the lowest since May, 1925. Some
commodities are even at or below
their pre-war price. Examples are
copper leather, sugar and gasoline
The available evidence goes to sup
port the theory held by some econ
omists that the long term swing in
commodities is downward and If that
is correct it must prove a strengthen
ing influence In the bond market.
Buying OF Government bonds by
banks and financial institutions goes
on steadily. The taX-eXempt 3ias had
slight setback during the week, but
the Treasury is made a new 1926
high.
There have been number of inter-
esting new issues during the week,
among them a German municipal
and a South American provincial of
tering. Two pieces of domestic
financing also illustrate the progress
made by public utilities and railroads
in filling their financial needs at pro-
gressively lower costs.
Carries Per Cent Coupon.
This week the Kentucky Utilities
Company sold IA mortgage bond with
a per cent coupon. Bonds of the
same company with exactly the same
liens were sold in 1921 with a per
cent coupon, in 1922 with a 8, in 1928
with a 6i2. in 1924 with a and in
1925 with 5l2 per cent coupon.
The Central of Georgia marketed
this week 100000 of refundng and
general mortgage SIS. A year ago a
$5,00O,O00 issue secured by the same
mortgage carried 512 per cent
coupon.
Probably the day Is still distant
when utilities as group will be able
10 sell mortgage bonds on Az per
cent basis, although one issue some
weeks ago did carry Az per
cent coupon and it will still be some
time before the railroads are able 10
borrow money on bonds with 3h and
per cent coupons, but at least il Is
plain that the trend is that way.
tCopyr'~ht 1926D
FOREIGN EXCHANGE.