Evening star., 1926-01-10
BONDS EXPECTED
+ TO REMAIN HIGH
Break in Stocks Rather Than
Bank Rate Change Might
/ Cause Slight Decline.
BY GEORGE T. HUGHES.

BY GEORGE L. HUGHES.
Special Dispatch to The Star.
NEW YORK, January 9.-On Thurs
day of this week the average price OF
40 typical domestic bonds listed on the
New York Stock Exchange stood a.
Tne highest point in six years. After
the close of business that afternoon
announcement was made Of an ad
vance in the discount rate OF the New
York Federal Reserve Bank from ) y
10 4 per cent. The only perceptibie
effect on the bond market of the en-
suing day was 4 check in activity.
The minor receSSiOnS that occurred
We're eXplainahle as u reaction after
tho strength OF the day before and
might have been anticipated even if
there had been no change in the bank
rate. As Il matter of fact, the bond
market for a long time has been moT'
ing with complete Indifference to tenn
porary changes in money conditions.
The chief influence in the early days
of the week was the demand for Sc.
curities founded on the heavy January
interest and dividend disbursements,
and this influence was paramount
after the bank rate was raised just
as it was before.
Change Largely Overlooked.
Now. whatever the effect ON Specu-
i:tJIyc sentiment, there was no reason
Tor bond prices to Ice governed hy a
change in the rate of ! bank which
simply brought it into line with the
other | institutions. even if that one
WAS the most important in the SyS-
TEN. Money had been easier earlier
In the week than at any time since
preparations began to bc made by
he banks to meet y2ar-end require
mentS. This was evidenced not alone
in the charge for day-to-day accom-
rnodations, but III the rate asked for
three and four month loans. The
weekly statement also of the Federal
Reserve banks as a whole. and Of the
New York bank in particular, showed
increases in the reserve ratio he
Improvement being most marked in
the condition of the New York bank.
lf, then, the change in the New
York bank rate was without SiS<lifi-
rance to the bond market, the ques-
ton arises what Will affect it in the
future and when? How high will
money have TO 20 before there is Il
sharp setback in the price of fixed
rate interest paying securities? What
other conditions are likely to be fac
tors of weight?
Slight Reaction Likely.
In the nature Of the case no exact
answer can be given, but it seems
reasonable to believe that when the
speculation which has carried stocks
10 such unprecedeutedly high levels
comes TO an end, and the long eN-
peCted but long postponed break
comes, there will be sympathetic re
action in bonds. 1t is not likely 20
r1.r. ;
has been on small scale compared
10 that in stocks, and investment
support will almost certainly bring
about recovery quicker in bonds
than in stocks. At this time il does
not appear that the selling OF sound
investment bonds with the eXpecta-
ton OF replacing them at lower
prices in the comparatiV ely near
future would be profitable.
Taking an even longer outlook,
substantially lower prices Tor in
NeStment securities of the fire grade
seem still more improbable. DiSre-
aarding the minor fluctuations, the
trend III money rates over Il period of
Years is more apt to be down than
up. t is true that America must
continue to finance Europe in huge
amounts and that the sending of all
this capital abroad reduces by that
much the amount available at home;
but it also steadily increases
The annual flow of interest. 1t
has been estimated recently that
the investments of private citizens
OF the United States in other coun-
tries are already as much as $1,000
1000. This total is not deCreas-
Ing, nor is it likely to.
On the contrary, as fast as Euro
pean governments pay off their debts
to the United States Government they
will borrow as much if not more from
The individual American investor.
Again this increases America : an
nual income available for reinvest-
ment, putting her in the position so
long occupied by Great Britain S a
creditor nation. and making for a
permanently lower level of interest
rates and permanently higher price
for bonds.
New Issues Going Well.
New issues have gone very well
This week. particularly foreign offer
ings. The BuenoS Aires loan. for eX-
ample, was 50 heavily oversubScribed
that allotneutS were cut to 80 per
cent. AS prices FOR domestic bonds
advance, attention will be turned
more and more to high yielding for
eign descriptions with consequent inn
pvovement in market values. For
eign borrowers. however. are II ruIat-
ing in their contracts the privilege of
retiring their bonds at prices which
limit possibilities Of market apprecia-
tiOn.
Rarely nowadays does u new for
cIgn bond issue make its appearance
that may not be called for retirement
in full or for account OF the sinking
fund at Il price not much above th,.
Offering figure. Naturally enough