Evening star., 1928-04-22
PRESSURE EXERTED
ON BOND MARKET
Rise in Federal Reserve Rate
Brings HeavinesS Into
the List.
Special Dispatch to The Star.

NEW YORK. April 2l-The higher
discount rates Unexpectedly established
this week by the Federal Reserve Banks
IN Chicago and Boston. and probably
70 be followed by the other banks in
the Federal Reserve system. have in
troduced new element into the in
veStment market situation.
During the greater part Of the week
high-grade bonds were under the
shadow OF StIffening money rates. They
did not pay 50 much attention 70 the
decline in call loans from 6 per cent
renewal TO Ia per cent as TO the grad
ual marking no Of the rate for time
loans The tone Of such bonds was
distinctly heavy. Doth for long term
and short term maturitieS, This ap-
piled not only TO the rails, but to the
public utilities II also affected slightly
the quotations for L. S. Government Is
sues. although here the factor was
more a sentimental than an actual one.
Government Issues Sold.
The sales Of short term Government
certificates in order to Withdraw money
from the market and thereby influence
rates, led 10 some uneaSlneSS on the
part Of banks that are large holders
of Liberty bonds and long term Treas
ury certificates. This was evidenced III
occasional liberal offering Of the issues.
II is obvious that with the discount
rate st Al per cent, bonds with 4'4
per cent coupon that have been pop
ular and have been selling at prem
iun1. must be subjected 10 some pres
sure. The best buyers OF such Securl-
ties are the banks and insurance COM
panies, The former have recently been
placing their surplus funds IN the call
money market. where they have been
earning a higher return than could be
obtained on securities. Whether or not
the call money rate will be influenced
by the new money policy, 1t is certain
that a AL per cent discount and
per cent time money rate will operate
10 the disadvantage Of all low income
yielding bonds
Prices for such bonds had reached a
high level. This in itself caused con-
siderable amount Of selling resistance.
For some time the legal railroad is
sues have stood at about their present
level The standard first mortgage
bonds have not moved an average OF
over haif point for weeks. They have
been selling below zl4 per cent yield.
with some OF the mortgages even lower
than this This fact had turned capi-
tai into the public utility group. These
issues that were legal IN Massachusetts,
and in other New England States had
gone 10 substantial premium, This
drove a large body of investors away
from them because of their unsatiSfac-
tory yield This capital found its out
Jet IN the then rol-legSl AZ and per
cent power and light bonds in antici-
patton Of an appreciation and higher
status after they should become legal
under the act proposed in New York
State.
General Buying in Group.
There was. therefore, very general
buying into this group during Febru-
sTY and the first half of March. The
members of it. ike those Of the old
legal list. went up 10 fancy prices.
Some Of them approached a A. per
cent weld Quite a number that had
bsen recommended for the legality
privilege die not meet the requirements
.mp0S I'd. and they have since reacted
or 2 points Those that did gain
entrance into the list had overdiS-
counted the situation and have also
turned downward in the past two weeks |
1t u felt that with the higher dis
count rates there may be an even
greater decline In them before they
reach a level at which they viii at
tract BUYERS.
The situation that now faces the in
vestment market MAJ be only q tenn
porary one While money rates are
high compared With other years at this
season. there is no scarcity Of capital.
Credit facilities have been abused in
the interest OF speculative markets. II
these markets are sufficiently hqutdated
IN the next few months there viii again
- -
the purchase Of bonds. Many invest
ment experts look TO see considerably
higher prices for bonds in the future
than have been reached in the recent
past. II IS anticipated that long term
Government issues may sell On a pc.
cent oasis. II they DO. the corporation
boilos will move up III relative pro-
portion. We are now IN an intermediate
period and have 70 deal With the prob
lens Of this period.
Speculative List Independent.
Those bonds that are more affected
By speculative than by money conditions
have moved by themselves this week
and may still be free 10 divorce their
movements from the general list This
includes limited number Of convertible
issues and bonds In which theve are
particularly favorable situations in re-
Epect 10 earnings, mergers. conversions
into attractive stocks. etc
II Is significant Of the times that
nearly all Of the new bond issues that
have some form Of participation IN
earnings Of the issuing corporation have
been eagerly absorbed by public which
sa the same time lis cisinclined to buy
straight mortgage bonds on low In
come basis
Another feature Of the present flnanc-
52g is the volume q preferred stocks
being placed and on which the returns
vary from 5iz to 6 per cent There
has also been moderate revival Of
real estate financing particularly IN the
form u mortgages on new hotels. IN
spite of the fact that in various Sec
TORS of the country the mortality
among hotel enterprises has been heavy
following q period Of oyerproduction
e =. -. 1910.