Evening star., 1930-12-10
SOURCES OF BOND
SELLING OBSCURE
Junior Mortgage Loans Are
Depressed Considerably in
Recent Liquidation.
BY CHARLES F. SPEARE.

special Dispatch to The Star.
NEW YORK, December 1O.-There
has seldom been a time when it was as
difficult to trace the source of the SELL
ing of railroad and other corporation
bonds and the reasons for it as at
present. There have been few occasions
also when a demoralized condition in
junior mortgage obligations conceded
so closely with a liquidating movement
in stocks, or when cheap money had so
little effect on high-grade' long-tsrm
issues.
Careful investigation of this situation
today indicated that an important
factor in the offering of bonds was the
interior bank which finds itself in a
position where it has to build up its
cash resources and where shrinkagcs of
a size to bring criticism from banking
authorities have occurred. 1t is known
that some heavy blocks of bonds have
been disposed of in the New York
market by banks in this position ana
that they had to be iquidatsd in an
extremely thin market.
Reducing Commitments.
Another influence is believed to be
the custom of underwriters and dealers
in bonds in reducing their commit
ments at the end of the year rather
than to carry over large inventories
into January. This has affected issues
that were brought out when the gen.
eral bond market was strong some
months ago but which were never we'll
distributed and have been carried on
dealers shelves" ever since
A third influence is selling to es-
tablish losses for income tax purposes.
This has been heavier in bonds than
for many years. Ordinarily the opera
ton is chiefly confined to stocks Op-
portunity for it has been given this
year by the extreme slump in the sec
ond and third grade railroad mortgages,
following the decline in earnings of the
carriers and the prospect that there
will be some issues now legal for saw
ings banks removed from the list this
month.
The general bond average today was
of about Z points from the high of
the year. The greater part of this de-
cline has occurred in bonds of medium
rating While the highest grade issues
have recently reacted in sympathy with
the others. they still show a small av-
erage change from their high of last
September. On the other hand, losses
ranging from 20 to 80 points have oc-
CURED in railroad bonds of the refund
ing or convertible type.
Conspicuous Declines.
Some of the conspicuous declines
in Erie Railroad refunding and i'm
provement SIS of 1875, about 80 points
in Chicago. Milwaukee, st. Paul & Pa
cific gold 5s of 1875; % points in st.
Louis-San Francisco consolidated mort
gage 41as; IL points in Chicago, Rock
Island & Pacific secured 412s; IS
points in Nickel Plate refunding 412s;
IA points in Missouri Pacific general
Is and % points in Missouri Pacific
convertible 512s.
The Erie refunding SIS in the amount
Of S50.000, 900 were offered last April
at 9512. 1t is understood that they
were never thoroughly distributed. A
similar issue was sold in 1927 at 9413.
The St Louis-San Francisco AIS were
brought out in the big bond market of
1923 and at a price that then was re-
garded as out Of line with the general
market. The decline in the st Paul
gold SIS reflects the drop of over As
points this year in the adjustment 5
per cent bonds, on which the interest
has been reduced and is expected to be
still further cut. The Missouri Pacific
convertible 5las have naturally moved
downward in response to the great
shrinkage that has occurred in the Mis-
souri, Pacific common stock, into which
they are convertible after next May at
500 a share. This stock is now selling
around S27 a share.
Domestic List.
There is the same lack of support In
domestic bonds as there was in Ger
man and South American bonds when
they were in an unsettled condition in
October and November Underwriters
take the position that they cannot
''hold the bag" but that liquidation
must run its course" They are will
ing to predict, however. that investors
who buy those bonds, whose margin of
safety fully guarantees them against de-
fault and that show a current depre-
citation of IS to 80 per cent, will realize
a substantial appreciation In them dur
ing the coming year.
Copyright. 1930.)