Evening star. [volume] (Washington, D.C.) 1854-1972, 1927-06-29
BOND MARKET
IN INITIAL HALF OF THE YEAR
First Quarter Sees Records Set, With
Second Quarter Having to Withstand
Glut of New Offerings.

gether; in the second quarter they
| have moved in opposite directions.
The primary causes of the reaction
in bonds, in the past two months espe-
cially, have been the over uppiy OF
new issues, the failure of the Federal
Reserve banks to reduce their dis
count rate and the misjudging by the
Secretary of the Treasury of the tenn
per of the public in the matter OF re-
turn on the new Government bonds
which are to replace the maturing
second ANS.
OF these factors the first has been
the most serious. Whereas the new
securities in the first three months
were $4,000 100000, they had risen to
S4.374. 900 900 at the end of May and
for the half year will be approx
mately $4,000 ,000,000 1t is true that
of the latter amount around $780,
900 900. or over 25 per cent of the to-
tall will represent refunding opera
lions. However, the domestic sup
plies of capital have not been suffi-
Gent to absorb new securities at the
rate at which they were being emitted
so that there are today probably
| S400 900 900 to $500.000,000 undis-
tributed and in rather poor demand,
although they are obtainable at prices
low those at which they were Origi-
nally offered to the public.
This situation will be corrected in
the course of time. The intrinsic
value of most of the new bonds is un-
questioned. The trouble has been
that underwriters have had rather
extravagant idea Of what they were
worth and their views did not coincide
with those of the ultimate consumer.
Furthermore, no concession was made
by the issuing house to changes that
have occurred in the last few months
in trade conditions. A case in point
is the price at which some of the
bonds of oil producing companies
have been brought out, in the midst
of the most serious situation in crude
oil in the history of the industry.
This refusal to meet a different set
of circumstances also has been re-
sponsible for the slowness with which
some of the foreign bonds have moved
out in the last few weeks. In view
of the sharp decline that occurred re-
Gently in all German issues, a number
of which dropped to the lowest of the
year, it will be interesting to note
how the market takes the new Ger
man securities that are now being
prepared for it.
Brokers' Loans at New High.
Had the Federal Reserve banks re-
duced their discount rate to 312 per
cent the bond market would at least
have been stabilized around the high
level of the year in spite of the
strong flow Of new issues into it. In
stead, however, money rates advanced
during the Spring. with long period
Of day to day renewals at ~ per cent
and with time loans working back to
Az per cent from Az per cent.
The continued expansion in brokers,
loans, until they have now reached
the highest figure on record, deter
mined those in authority against rails
ing the rate, which is likely to stand
at per cent throughout the Summer.
For the first time since brokers' loans
became public, the factor of borrow
ings against undistributed bonds has
been prominent. 1t is now conceded
that no small portion of the increase
since February has been due to the
necessity of investment houses obtain
ing credits from the banks to carry
undistributed securities.
The Government operations at first
acted favorably on the general invest
ment market and then adversely. The
original exchange basis for the Sec
ond Liberty AIS was received with APP
prevail. 1t was little better than the
general market at that time demand
ed. On the other hand, the second
basis Of exchange was less advanta-
geous than the market warranted, for
prices had begun to react and it was
obvious then that there was to be no
assistance to the Treasury in the way
of official or open market money rates
So, while the original operation had
an exhilarating effect, the sequel to it
was quite contrary as it emphasized
the unwillingnesS of many small in
vestors to accept a rate of return on
| their securities lower than that avail
able on a savings bank deposit.
Future Outlook Is Good.
The future of the investment mar
ket Is, in spite of the present sur
rounding conditions, satisfactory.
| There is no reason to expect other
than a gradual return of the prices of
good bonds to the level at which they
stood last Spring, or to change ones
views of the investment market COW
ering the next year or so.
Money is bound to be abundant and
rates for money will be low. Indus
try is not requiring the banking ac-
commentator THAT IL ulu ldSL year OF
in 1925. Gold reserves are steadily in
creasing and the amount of interest
payments to this country on balance
will keep the reservoirs of credit filled
for a long time to come.
Some judges of investment condi-
tions expect to see a steady improve
ment in bond prices for several years
and, ultimately, a level that will APP
proximate that of a quarter of a cen
tury ago. This may be too opti-
mistic view. The bond distributing
organization of the country has been
speeded up very much in the last few
years and it may lead to a greater
supply of new issues than can be alb
sorbed even by a country that is Great
ing SO much new wealth each year.
If there is moderation in the matter
Of new issues. the other factors relat-
ing to the investment market will be
sufficiently favorable to continue the
trend of prices in the same direction
that it was headed until the end of the
March quarter of this year.
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