Evening star., 1928-12-31
additional bonds for which there was

uIQ IlOL wear OH ullLu OCIODeT. Ju}y
and August were the two most trying
months that investment houses have had
since the war. There we're days when
bids could not be obtained on Govern
ment bonds or on the very best munici-
pals and when the offer Of so legal
rails or public utilities would have
broken their market wide open.
The banks we're forced to sell In or
der to correct their condition with the
Federal Reserve, from which they had
been unduly borrowing in order to assist
customers specializing in stocks. Lib
erty bonds declined 31s points Several
of the long-term Treasury certificates
lost as much as GIG to z points. Both
of the 3as per cent Treasures, which
had been used in refunding the third
Liberty 4AS, went to substantial dis
count. The average price of the leading
railroad mortgages declined 6 points,
that of public utilities about points
with a similar loss in industrial bonds.
Tax exempt issues of States and other
political divisions which had been SELL
ing between 334 and per cent basis
declined until they were available on
from 4 per cent to 4A per cent
yield.
There had been, along with the issu-
ance of low coupon bonds, many offer
ingS of preferred stocks, the better ones
with per cent dividend and others of
lower quality at 6 per cent. These suf-
fered severely in the readjustment to
the new money market conditions and
have never recovered. One of the last
to be brought out was per cent pub
lie utility at 95, which this month has
been selling at about 33.
New Issues Restricted.
1t was only by the patient nursing of
the bond market during the Summer
months and in the early part Of the
Autumn and by withholding from it all
but imperative new issues that 1t re-
gained its health. In the September
quarter new financing was smaller than
for any similar period in years There
were practically no new foreign loans.
Gradually the insurance companies took
up the floating supply of both new and
old issues and with the cutting of prices
to figure that appealed to the public,
the underwriters and the dealers were
able to distribute bonds they had been
carrying since Spring.
More recently the volume Of new
issues has increased. Total financing
has been heavy but only because of the
large amounts of stocks put out by cor
porationS and by investment trusts. At
the end Of the first 10 months of 1923
total financing had dropped we'll below
that of the same period of 1927 although
1T had been well above it in the first
months. For IL months the final
figures will show decided reduction in
bond volumes compared with 1927 and
1925.
The difficulties that beset the Gov
ernment in its financial operations this
year are typical and emphasize the de-
gree. to which even the most astute
bankers may be miSled in a period
when money rates are controlled by a
public whose speculative passions have
been unleashed. When the Az per cent
Treasury notes became due December Is,
1927, they were retired. as stated above,
With 314 per cent 1-year notes, and in
January 31s per cent Treasury notes
were offered in exchange for the third
Liberty loan bonds. In March ga and
33s per cent certificates of indebted
ness, the one for months and the
other for II months, were sold and in
June per cent six months notes were
disposed of.
Money Trend Upward.
The 3l2 per cent January notes very
soon went to discount. Various offers
to exchange the third Liberty bonds
only lukewarm response, as the hold
ers Of the Liberties obviously could see
little advantage in taking a lower
coupon issue, with the trend of money
advancing so rapidly, in exchange for
one that would at least yield them a.,
per cent to maturity. In July, about a
week before the Federal Reserve dis
count rate was raised to per cent, o
new issue Of moderately long-term ga
per cent Treasury bonds was offered.
This issue had an unfortunate market
and later sold at discount of 2 per
cent.
In September money conditions were
so stringent that the Treasury was
compelled to employ for refunding pur-
poses 4H2 per cent nine-month note,
and IN October an offering of 43z per
cent notes was made, the highest since
1921. Instead of retiring old bonds
with new issues at a lower rate, as had
been possible previously. the Treasury
was compelled in practically every In
stance to increase the rate on the new
certificates over that of tf2c old, this
increase in the most rec refunding
having been as much as ! cent.
Bond Market Lett I.
It will be seen, therefore. that. how
ever much advantage the country NAV
have had from appreciation in the mar
ket value Of stocks, this same condition
has at times put the bond market fiat
on ltS back, greatly inconveniencing
corporation borrowers and embarrassing
the United States Government in IFS
program Of refunding its war loans.
This has been responsible for the Sc
we're criticism leveled at the Federal Re-
serve by numerous investment dealers
whose business has been shot to pieces
oy the maintenance of per cent dis
count rate. which is higher than the
interest rate on the average quality cor
poration bond and which policy has
undoubtedly been responsible for the
time money rates Of 712 per cent, under
which no bond market can hold up.
The banks, which are the largest Gus
toners or bond houses, both for dones-
tic and foreign securities, have been
compelled to sell bonds. More than
this, they have been unwilling to buy
investment securities when they could
employ their reserve funds in the call
money market at an average as high as
That obtaining during the past six
months. The same is true to a lesser
extent Of the investment trusts.
Outlook for 1929.
What Is to be the effect on the bond
market in 1929 of all of the wounds it
has received during 1923?
Obviously the first change that must
take place before the market recovers
its poise is in money rates. Bonds and
stocks, it is true, did advance for a while
together last Spring. But bonds cam
rot rise in competition with a move
ment in stocks so broad that it takes
capital out Of the investment market
and distorts the Judgment of the aver
age bond buyer, whether he Is a private
Individual, the investment manager Of
an institution or the president of q
bank. Until money rates decline to a
point where 1t Is no longer possible for
the corporation or the bank to employ
It's funds in Wall Street. it will be difh-