Evening star., 1927-05-15
BONDS GO HIGHER
IN WEEKS TRADING
Calling of Second Liberty and
Chesapeake Corporation
= Forming Features.
BY GEORGE II. HUGHES.

NEW YORK, May 14.-This has
been an unusually interesting week in
the security markets. 1t began with
the announcement of the calling for
redemption on November IS next of
the remainder of the outstanding Sec
ond Liberty loan. and 1t closed with
the revelation of purchase by the Fed
eral Reserve of 10000, 600 of foreign
gold, Other incidents of importance
were the segregation of the holdings
OF Chesapeake & Ohio stock owned by
the Nickel Plate, a sale of New York
City bonds on the most favorable
terms to the borrower since 1909, and
the initiation of a plan to rescue the
oil industry from its desperate straits.
The result of these incidents was
higher prices on the average for
both stocks and bonds. There were
exceptions in each market. but they
We're not important Neither We're
the gains large, but they were signifi-
cant because they came after so pro-
longed rise. The inference that
Wall Street drew from all the develop
ments concerned with thes money
situation was that credit ease was to
continue for long time to come. The
fact that Secretary Mellon postponed
the offer he is to make of new Sc
curity in exchange for the second Lib
erty bonds indicated confidence that
he could do as well for the Govern.
ment later in the year.
New York City Bonds.
Much the same deduction was made
from the high price paid by the sue
cessful bidders for the New York City
bonds. That. too, pointed in the di-
rection of sustained easy money. Per-
haps this view is correct, but it takes
something for granted. There really
is no assurance as to the future OF
money in the fact that bonds can be
sold now on a lower yield basis than
at any time since the war. This may
be the peak of the bond market and
the low of interest rates. Money is
not easy because bonds can be mar
keted at high prices. Bonds can be
marketed at high prices because
money is easy. Admitting that there
is nothing in sight to indicate a har-
dening of interest rates, it does not
follow that nothing may happen to
bring about such a change.
There are two points about the
Federal Reserve statement. One is
that gold reserves are at the highest
since 1924. The other is that the pur-
chase of the French gold, classified
in the report as gold held abroad"
coincided with the sale of about as
much in United States Government
securities. Probably that represents
an effort on the part of the banking
authorities to counteract the influence
of all this excess gold on money
rates. 1t makes more doubtful any
reduction in the rediscount rate on
this side unless and until such
course becomes necessary to help
sterling exchange. A reasonable con.
clusion Is that the Federal Reserve
does not want to encourage further
excessive speculation in securities as
any new decline in money rates would
surely do.
Chesapeake Corporation Forming.
The important thing in the railway
field was the formation of the Chesa-
peake Corporation to hold the shares
of Chesapeake & Ohio owned by the
New York, Chicago & ST. Louis. The
Chesapeake & Ohio stock was pledged
as collateral for $4S,000.000 con-
vertible bond issue. The bonds ad-
mitted to trading on a when issued
basis, Immediately went to d 3-point
premium, showing the favor in which
the investment and speculative public
holds the convertible bond and the
faith the same public has in the rail-
way outlook. Speculation in the stock
of the new holding corporation tells
the same story. True the Chesapeake
* Ohio has made extraordinary prog
ress in earning power and many COM
mentators have been saying that the
stock was behind the railway market,
but 1t is full 20 years since anything
of the kind could have happened
Turning now to the general busi-
ness situation, and particularly to the
industries not sharing in the aver
age prosperity, the effort to find a
remedy for oyerproduction of oil is
the most encouraging move in this
connection this year. Merely to bring
out the facts and to spread them on
The record and to discuss the whole
trouble in the open is the beginning of
recovery. Oil securities responded
only half-heartedly to these efforts,
but at least the liquidation in them
dried up. Not so much heed was
given to the similar situation in the
wool trade, but there also steps were
taken to stop the enormous losses
consequent upon overproduction.
The striking thing is that difficult
situations in particular industries do
not affect the attitude of the trading
interests toward the market as a
whole. In this respect stocks this
week moved consistently with their
record Of the year to date. Weakness
in oil and woolen shares has not at
any time been made the excuse for