Evening star. [volume] (Washington, D.C.) 1854-1972, 1926-08-08
Rally OF FRENCH
BONDS |SFEATURE
Recovery of Dollar Issues
and Better Tone in High
Grade Securities Noted.
BY GEORGE T. HUGHES.

III ULUNUE L. IINOI1CIo.
Special Dispatch to The Star.
NEW YORK. August THE three
developments in the Investment mar.
ket this week were the recovery in
French dollar bonds, the renewal of
speculation in bodybuilding railroad
issues and the better tone of the high
grade domestic securities.
or these three the most striking
was the rally inf French bonds. No
other group Of foreign obligations
dealt in on this side has been the
subject Of so much discussion and
such wide difference of opinion for
the past year or two az French bonds
payable in dollars. These French eX-
ternal loans are widely distributed in
the United States.
They are held by investors of every
degree of strength but there is
enough of a floating supply to keep
trading interest at a high pitch.
Dollar Bonds Sag.
Now as to the French financial con.
dition there is no dispute. For months
it has verged upon bankruptcy. Up to
July 20 French francs. with only
minor periods of rallying, had been
declining. On that date they made a
record low under cents. Discussion
was heard on every side Of the pos
sibility Of the franc following the
mark" When the Poincare govern
>ment took charge and outlined a pro-
gram of rehabilitation, confidence
gained ground and in the resulting
upward reaction the franc was car
ried above cents.
All the time the franc was going
down French dollar bonds sagged
but at no time were losses CORE
spondingly severe and at no time
did the decline become dlSorderiy.
When late this week the franc had
it's sharp upturn, French bonds Went
along, and one of them, the Z per
cent government issue of 1949, sold
at the highest point of the year. Sub
sequently, there was q loss of part OF
this gain. but the fact stood out that
the French external loans. in which
American investors are chiefly inter
ested. were more sensitive to good
than to bad news.
OF course, the first comment upon
this situation is that, since these eX-
ternal loans are payable in dollars,
there is no reason for them to be IN
fluenced by the fate Of the franc.
Still, sentiment plays such a large
part in the making of quotations that
This exclamation is not adequate. An
other theory expresses the same idea
in a different form and is somewhat
more satisfactory. This is that, even
if France were compelled to reorgan-
ize her financial system on a new
basis, substituting some other unit
fol. the franc, she still would nave
to honor her external loans; otherwise
she could not obtain the necessary
foreign credits to stabilize the new
currency.
Higher Yield Basis.
Still another phase of the matter
is that with the exception Of the re
Gently fioated italian loan, French
dollar bonds have been selling ana
still sell on higher yield basis than
the obligations of any other CONT
mental European country of equal
rank The German Is, the interna-
tional loan for example. issued about
the same time as the French rs ana
at an initial offering price points
lower. sell some Is points higher in
the present market. Germany has
cone through financial reconstruc
lion. France has still to put it's house
in order. Meanwhile. foreign bonds
have been slowly advancing in re-
Spouse to money conditions, so that
some appreciation in French issues
could be expected for this reason
alone.
The renewed interest in the higher
yielding railroad bonds was a direct
reflection of the Improvement in
earnings. The statement of aggre-
gate net railway income for all class
roads published at the close of
the week was particularly impressive.
1t only bore out. however, the deduc-
tons from the monthly reports which
have been increasingly favorable all
year. Naturally enough, it was rail
way stocks which reflected all this
in the greater degree, but group Of
railway bonds on which interest pay
mentS are contingent charges were
also taken up this week, and some of
them advanced to new tops for the
year.
Showing Good as a Whole.
AS long as earnings keep up to the
present rate there is little danger of
this movement being carried too far.
ON only one score is a word of caution
in order. This relative railroad pros
perity might easily lead to fresh pres.
sure for lower freight rates and to
more insistent demand for higher
wages for railway labor. Not all sec
tons of the country have Jared alike,
nor have all the railroads been
equally blessed. but the showing as a
whole is SO good as TO attract atten.
tion from other groups than investors.
The recovery in the high grade in
vestment list has been slight, but at
least it can be said that the July re-
action appears to be over. One rea-
son may >be the comparatively small
volume of new financing. This week 5
total of new bond. offerings. which
was only a little over $4,000 900. was
the lowest since, the week ended Au-
gust IS. 1925. and compares with over
$50, 000, 600 a week ago.
Probably it would be a mistake to
assume that a brisk upward move
ment is in store, because there are
signs that more money is being di-
verified to commercial channels and
that the seasonal movement In this
direction is beginning this year earlier
than usual. There has been no change
in the time money market nor in that
for commercial paper. but the weekly
statement of the Federal reserve
banks showed some increase in hold
ings of discounted bills. Still, money
is likely TO remain reasonably easy
and the bond market fairly firm.