Evening star., 1929-06-30
BOND PRICES SAG AS MONEY
RATES REACH HIGH LEVELS
Lowest Domestic Group Mark Since 1926
Is Reached-June Sees Climax
to Tumbling Values.

, were those in the government and
municipal issues Of Poland, Greece,
Bulgaria and Italy, which ranged from
| S to 10 points. French and Belgian
obligations. as well as those OF Holland
and the Scandinavian countries, were
naturally affected, though more by
| money rates than by other unsettling
factors.
Short-Term ReadjustmsntS.
The high terms exacted for corpora
ton and municipal financing during the
six months period compelled a sharp
readjustment in the prices and yields,
| not only on old issues, but on those
that had to be offered to provide new
capital. Short-term obligations were
readjusted to the current money rate,
which meant that, whereas they had
been selling on from 414 per cent to
| Az per cent basis year ago, they
were fixed between a 5la and per
cent level.
Municipalities found it quite impossi-
| BILE to sell long-term bonds and there
fore arranged their financing to mature
| beyond the probable period OF extreme
| interest rates. This brought out large
number of short-term tax exempt issues
with yields of between 512 per cent and
| 6 per cent which, to the corporation
purchasing them, gave net return
| from around $40 per cent to about 6.75
per cent. At one time the September
and December Treasury certificates were
available at a price that returned the
buyer a net income of well over 6 per
cent.
The conditions above outlined were
mainly due to the effect of high money
rates in this country and abroad and
to the fear that an unsatisfactory con-
clusion of the Paris debt conference
might lead to difficulties in the way Of
iy,fn oV1fc
ing obligations. There were, however,
other influences at work which laid a
heavy burden on the investment market.
| Chief of these was the practical boy
| colt by the investor of bonds owing to
a strong temporary preference for COM
mon stocks or for debenture issues con-
yertible into stocks. This resulted in
the selling of bonds in exchange for
equities" on very large scale, not only
by private investors but by institutions.
1t further brought out an enormous vol
ume of stocks in response to the wide
spread demand for them. Eventually
this market was glutted and became as
badly congested in the form of common
stocks as it had been in bonds the year
previous.
New Issues Down Sharply.
In the first five months of this year
| the total issues Of bonds were 81 ,562,-
100000. This compared with $685.
100000 in the same period of 1928 and
was so per cent smaller than In the
first five months of 1927. While every
form Of bond financing showed a
shrinkage from the 1928 output, the
largest losses were those in the public
utility and foreign groups. The total
for the first type of borrowers was $751;
$4,000 this year and $788 ,6o0,0 in the
January May period for 1928. A much
greater decline occurred in foreign
financing, which was $4,000, 600 for
the five months this year and $6S5, ,000,-
600 for the same months last year.
Practically no new foreign loans were
negotiated in the second quarter of
1929, which has been more barren of
foreign financing than any similar pc
riod in the past six or seven years.
While financing with bonds was
shrinking the emissions of new capital
in the form of stocks were expending
at ratio of So in stocks for 81 in
bonds, This would be even higher If
the convertible bonds. which eventu-
ally become stocks, were SubtTacted
from strictly mortgage issues. Nearly
$3.50, ,000, 900 in stocks, or one-third of
the total sold to the public. were those
of investments trusts, or trading cor
porations About 25 per cent were the
issues of public utilities and 20 per
cent those of industrial companies.
Only nominal amount came from the
railroads, although, from the stand
point of actual values for their secur-
tiles, they wee in a better position
to sell their stock than other borrow
ers, who placed them on somewhat ex-
travagant predictions of earnings In the
next few years.
The situation that faces the holder
of bonds and the originator of new
/ bond issues at the end OF the half year,
Is not so complex as it was three months
ago or at the beginning of 1929. Back
of them are the maximum effects OF
several of the influences that have
pressed most heavily on the investment
| market. It is not likely, for example,
! that there will be in the next six months
a repetition of high average for call
! and time loans that have been expert
enced since July, 1928 Nor will there
be the intense competition of specula-
ton in stocks and f1otation of new
equities" that has had to be met with
either of both of these conditions
would have decidedly constructive
influence on all classes of investment
securities. Consequently, one may rea-
Sonably expect to see ali average Tor
bond prices before the end Of 1929
materially above that now ruling.
Public Strongly Stock Minded.
On the other hand, it has to be ad-
mitted that decided change in the at
| titude of investors toward the type OF
security which they prefer has taken
place The public is still strongly stock
minded. It believes fully in what it
has been taught through various agen-
eies--that stocks rather than bonds
provide the largest capital appreciations
over a term of years and that the COM
mon shares of strong industrial, public
utility and railroad companies. as well
as those of well managed investment
trusts, should represent a high proper
ton of the total holdings in any port
folio. Therefore, more or less resist
ance will be shown to bond issues Of an
indifferent quality. In order to meet
| this underwriters must readjuSt their
ideas as to price and provide medium
for financing that will not only insure
full payment of principal and interest,
but permit the purchaser to share in
the profits of prosperous concern.
This means that new financing Is
likely to run strongly to the convertible
type of bonds which is economical to
the borrower, for it may be fioated at
relatively low rate of interest, as wit
ness the numerous Az and per cent
debentures placed this year, and at the
I l0 h,ty, r-e