Evening star. [volume] (Washington, D.C.) 1854-1972, 1927-06-05
STOPPING OF BONDS.
RISE SIGNIFICANT
important Liquidation Lack
ing, But Buying Enthusiasm
Also Is Absent.
BY GEORGE It. HUGHES.
Special Dispatch TO The Star.

special BtSTatch W lhe Stdi.
NEW YORK. June 1.-THE i'm
portant question as regards the out
look for securities at the end of the
week concerns the significance of the
halt in the upward movement in the
bond market. If the heaviness now
apparent in fixed interest rate invest
ments is an indication that money is
going higher. II is the most important
development of the year to date. for
primarily the prolonged rise in stocks
has been founded on superabundance
of credit.
As far as the bond market is con
ccrned. there can be no dispute about
the facts. The average price of do
mestic bonds Is lower. not only on the
week but on the month. Foreign
bonds are moderately higher than
they were Il month ago, but not up
to the peak of last March. Foreign
Londs. however, respond to different
TT of influences and may be disre-
garded for the present purpose. This
is not to say that bonds have been
weak. Holders are not inclined to
make much concession, and so there
has been no important liquidation;
but there is no buying enthusiasm
either What transactions have &C.
Cured. in the high grade group at
least. have been at declines, not large
but fairly uniform.
Government Bonds Slump.
Another symptom is the recession
in the quotation for United States
Government obligations. This time
the success of Il new offering of Treas
ury bonds has not been followed by
an upbidding of the older issues. New
financing in general has not been as
successful as has been the case earlier
in the year. one or two of the new
issues have passed into the hands OF
permanent investors only after the
exercise Of Il good craftsmanship. There
was a time when the complaint OF
the bond houses was that they could
not get good securities to sell. The
condition is not as evident as it was.
The bond market might be expected
to foreshadow higher money before
there was any indication of the kind
in stocks. In this connection it is in
teresting TO know that the statement |
of the member banks of the Federal |
Reserve system shows that their |
holdings of Other bonds, stocks and |
securities" are $3.50, 100000 above |
what they were a year ago. The eX- |
act figures are 50 ,404, 7S9 900, against |
BIS $50 900 at the same time in |
1925. If. and when, there is a change |
in the money outlook, a proportion of /
this huge amount of securities will |
come back upon the market. 1t may |
be that realization of this possibility |
is what the bond market is rejecting |
at the present.
Federal Reserve Statement.
The statement of the Federal Re- |
serve Banks may throw some light on |
the situation also. Gold reserves are |
down on the week, discounted bills |
are up sharply and the reserve ratio |
is off some 2 points from where it |
was a week ago. Every one knows |
that brokers' loans have been stead
lily increasing for long tine and now
stand not much below the peak for |
all time. This trend cannot continue /
indefinitely without having an effect |
upon stocks as well as bonds. Some |
such consideration may have entered |
into the minds of spectators who |
took the selling side in the stock mar.
ket at the close of the week.
Not so much importance would be
attached TO the foregoing summary
II there were any signs of wide bust
ness expansion. Such is not the case.
however. While the prevailing mod
crate contraction is probably seasonal |
Tor the most part, at least there is
nothing IN sight that would warrant |
excessive speculation for the rise in |
stocks. Business is good, but not i'm |
proving in any degree commensurate |
with the recent rise in speculative Sc
curlties. The most encouraging fea- |
ture is the reversal of the movement |
In commodity prices. Mostly this is |
que to the higher prices for grains |
but that Is matter to be taken into 1
account. The low range of quotations |
for agricultural products has long
been discordant note in the elo- |
quence about current prosperity.
Adverse /. c. c. Report.
Outside the market the most at. |
tention was paid to the adverse re- |
port of the Interstate Commerce Com.
missions examiner on the application !
Of the New York Central to unity |
control of its subsidiaries. Among the |
professors were several so-called |
short lines" If the view that these
short lines must be taken care of in
any consolidation scheme is adopted
by the committee itself it win have
an important bearing upon the en-
tire railroad outlook.
The suggestion that small roads
with insufficient traffic to be self-sup.
porting will have to be provided for,
regardless of whether or not the larg-
er systems want them, will not be
relished in railroad circles. The argu-
ment is that the short lines have such
economic Importance that they must
be preserved even at a financial loss
to the parent road. If this idea pre-
fnFOn a