Evening star. [volume] (Washington, D.C.) 1854-1972, 1927-06-29
BY CHARLES F. SPEARE.

BY CHARLES +. SPEARE.
NEW YORK, June 29.-The invest
ment market in the first half of 1927
may be divided into two parts, each of
which has had its distinctive fea-
lures.
In the three months to March 81,
bond prices rose steadily, eliminating
Mt the highest level in nearly 20 years.
This was a period notable for the vol
ume Of new issues, for moderately
easy money rates and a strong mar
ket for stocks.
In the second quarter of the year
nrice tendencies have been the re-
verse of those in the earlier period.
At the end of it many foreign issues
are at the lowest Of the year. ana
numerous high-grade domestic bonds
show declines of from two to nVe
noints from the level established last
Winter.
The influences that were most oper-
alive in creating the earlier rise were
abundant credit facilities, the trans
fer of funds from commercial actlvl-
ties into securities, the employment
of some part of the foreign balances
located in this country in the Amerl-
can investment market, retirement
of a portion of the United States Gov
eminent debt, transfer OF capital from
the real estate market into tnat 1or
CORPORATION mortgages, and compe-
tition on the part of the underwent
ing houses for new domestic and for
eign issues to satisfy the public de-
mand. e..
In the subsequent reaction the rae.
tors at work were, an oVersupp!y OIL
new issues. the unwillingness or the
.nublic to buy old issues, as well as
new ones, at the low income OASIS
nrevailing. which resulted in a very
congested state in the market for ne"
loans: the lack of response on the
mart of holders of the second LIBERTY
Az per cent bonds to the proposal
of the Treasury that they exchange
them for 3ss per cent bonds. ana I'M
satisfactory political and dnanclal con.
ditions in some OF the countries VI
Europe and South America that nave
been large borrowers of the United
States. ..- . .-.-..... .-.-
Easy Money Started Boom.
Easy money promoted the bouyant
bond market in the March quarter or
the wear. It was during this period
that many individuals and institutions
shifted their investments to increase
their ratio Of long term matur1tles ana
reduce their short-term notes. Cali
money fell below 4 per cent. Ilne
money was obtainable at 4A per cent.
Discount rates in Germany, FRANCE
and Great Britain were being lowered.
The Federal Reserve Bank in New
York was celebrating on a reduction
in it's discount rate from per cent
to 3h per cent.
ITnited states Government bonds
were then at the highest prices In
their history, with premiums OF from
to nearly Is per cent on the long
Urea sury issues. State bonds were
selling on about a 81 per cent basis,
and all but the poorer grades or nortn-
ern and western municipals were rap
idly dropping down to per cent re-
turn basis. Conditions seemed 10 DC
very similar to those that had optalh-
ed between 1900 and 1902, when nrst
mortgage railroad bonds sofa very
much above par and munlclpals' lnen
unaffected by tax-free covenants, were
in demand around a 312 per cent re-
turn. .s
At this time also a great many MOD
eratelv high coupon bonds were being
called and refunded into bonds with
coupon of Az per cent or u per CENT,
conpared with .5A per cent ana b per
cent on issues retired. Institutions
that held the second Liberty 4A per
cents willingly accepted the PROPOSE
tion that they turn them In ana take
in exchange a 5-year 3h per cent
note.
Corporations Were Big Buyers.
cornorations showed very large
amounts of idle funds when they com
nenced in the first quarter or l9Zi 10
rubbish their balance sheets. Supse-
nuently some of this idle capital was
nut to work in the investment market.
Week after week the figures or the
Federal Reserve member banks re-
vealed the fact that these institutions
were building up their 1nvestment
nortfolios and that between the emo OF
1924 and the Spring of 1927 they nao
Increased their investments from VA
555 600 900 to over $4,000, 900 600. AS
a matter of fact the banks nave peell
the biggest bulls on the bond marKet
this year, though they overbought iast
Winter and Spring. 1t was their WIN
drawal from the market early IN May
that led to the first signs OF the COM
ing reaction. o.
In the three months to March 81,
the issues of new securities amounted
to over So, 500, 900 900. which compared
with a little under 81 200, 100000 in the
same period of 1926 and an annuai
average of $3.50, 000,00 in the three
preceding years. In the majority OF
cases the prices at which these new
offerings were listed compared FAVOR
ably with similar bonds outstanding.
The purchaser often enjoyed n imme-
date premium on his bond. One or the
prominent developments was the sud.
den popularity of Italian munlclpai
and public utility issues for winch
American banking firms bid eagerly
and to which the American investing
public subscribed most willingly. A
month or two before there had been a
very vigorous upward movement In all
German bonds, many of which hao
risen to about their call prices with
the German Government Is more than
four points above the level at which
the annual sinking fund is operative.
1t is undoubtedly true that great
many people who had been operating
in the stock market for long while,
but who felt that the level OF stock
prices was dangerously high. were
putting their capital into the bond
market in March as they released 1t
from stocks and that this was another
of the many factors then making for
strength of old issues and the ready
absorption of new ones.
When the stock market continued
to advance throughout the SPRING, and
day after day established itself in
higher price area. these same people