Evening star. [volume] (Washington, D.C.) 1854-1972, 1927-01-02
i. S. AND FOREIGN
BONDS H0LDSTA
Investment Interest Confined
to Two Groups as the
Year Ends.
BY BYRON SELLER.
Special Dispatch to The Star.


BY BYRON SELLER.
Special Dispatch to The Star.
NEW YORK. January 1.-The year
ends with investment interest con-
fined to two groups, so far as fixed
rate Understanding securities are
concerned. These are first United
States Government obligations, and,
second, foreign dollar bonds. Outside
these two classes the market has been
firm but dull.
Taking UP Government issues first,
practically all the active descriptions,
Libertys and Treasury bonds alike.
have sold this week at the best prices
OF the year. and, for the Urea sury
bonds, at the best prices for all time.
The whole group is working toward
3ia per cent, yield basis, and that the
Treasury Department will be able TO
float the next long-term loan on terms
more favorable to the Government
than at any time since the first Lib
erty avs were sold admits of no
doubt.
Two differences Drawn.
Two differences are to be drawn from
the display of strength In this quar-
ter: one of them that the banks have
no expectation of any important hard
ening of money rates, and the other
that as the sunnly of the United
States securities is diminished through
debt retirement higher prices for obli-
cations remaining outstanding are as
sured by the demand from corpora
tions which find them the most con-
venIent media for idle funds. For this
last purpose no substitute is in sight.
In every balance sheet. cash and Gov
eminent bonds are for all practical
purposes synonymous. Both convey
the same idea to the mind OF the ana
lyst.
This view of the matter, namely,
that Government bonds for temporary
investment are in a class by them
selves, is confirmed by the fact that
there has been no overflow of demand
into high grade corporation bonds,
long or short term. If>anything, these
have Jagged behind the rest of the
market.
Even the savings banks do not seem
to have been active purchasers of the
first mortgage rails. This may be ex-
plainahle on the ground that the pre-
vailing yield of the most seasoned
securities of this type. is only around
Az per cent and that further invest
ment in this group would not be
profitable if the movement, not yet
general but attracting wide attention,
to raise the rate of interest on saw
ings hank deposits is to be justified,
The best municipal bonds return less
than the corresponding railroad issues
and so they. too, are not available if
savings banks wish to increase their
income for the benefit of depositors.
More Money in Mortgages.
The only conclusion is that larger
sums are being placed in real estate
mortgages In fact, as interest
stands today the real estate mortgage
makes a more favorable comparison
in point of yield with corporate Sc
curities than at any time during the
past year.
The buying of foreign bonds has
gone on with quite a different motive.
Here the attraction has been not only
the high yield which these, securities
almost uniformly give. but the specu-
lative possibilities. In other words, 1t
has not been purely investment
movement. That this is the case is
abundantly proved by the way in
which French securities have taken
the lead. Whether the French finan.
cial situation has cleared up suffi-
GENTLY TO support the rise in French
dollar bonds this week is not the
question. The pointeis that there is
greater opportunity for additional ad
yanees fin the French list than any.
where else in the foreign group.
Compare the French with the Ger
man, for instance. German Is, the
international loan, selling at 107. are
: two points above the price at which
they may he called. The investor
who buys German rs at this time
does so because the 6ia per cent re-
turn is attractive TO him. The buyer
NJ EStsorat Se hn oil ~
not only the immediate compensation
of a z per cent yield, but the chance,
IL all turns out well, of five points or
Whereabouts additional profit before
the sinking fund call price is reached.
French 71as Are Higher.
French TVS sold this week higher
than ever before In their history and
on q lower yield basis than any other
French bond, and for one reason only,
that they are con-callable before ma
turity. The buyer at prevailing prices
envisages even tafAer profits here
always provided tAere is no new set
back in French finances. In other
words, an investor 10 willing to take
the risk on a foreign bond If he is
paid to do SO.
1t will not do then, to take it for
granted that the strength in the for
eign issues this week was a reflection
of any striking change abroad. 1t is
true that the Bank of France has I'M
dertaken to hold the franc around the
AGENT level for tho present, but it
is not official stabiliza ton. What has
happened is that some check had to be
put to the defiation process to give
time to French business to readjust
itself The international debts are
still menace to permanent reforms.
and until they are settled and it is
seen that the expected industrial
crisis can be successfully met, doubt
will remain about the French stu
alton.
Belgium has balanced its budget and
has ratified the debt agreement with
the United States, but at a heavy cost
to Belgian taxpayers. Belgian dollar
bonds have been second in strength
only to the French during the week.
but that was not due 10 conviction
that Beigiar's troubles were at an
end, either. Probably 1t Is fair to saw
that the r1sk Inherent in these foreign
bonds is slowly being lessened. but
that In some degree it still holds.
1t is also to be kept in mind that
AFTER all the rise in the general market
during 1925, per cent represents a
larger speculative quality on any Sc
curity in December than 1t did la st
January.
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