Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-06-02
new BOND ISSUES |
AFFECTING PRICES
Public Declared ApathetiC to
Debentures and Awaiting
Better Stock Market.
BY CHARLES F. sPEARE.

Special Dispatch to The Star
NEW YORK, June at is necessary
to go back some years in financial his
tory to find parallel for the condi-
lions obtaining the past month in the
market for long-term bonds. Those
who have long been identified with the
investment business have seldom wit
messed so complete Stalemate between
buyers and sellers of high-grade securi-
ties or so little response to such a strong
set of money influences as has been
present since Federal Reserve banks re-
duced their rediscounts In April and in
the early part of May.
Comparing average prices of domes-
tic bonds now it will be found that they
are approximately at the same level as
a month ago. Foreign dollar issues are
trifie higher than at the end Of April
This means that, in spite of a lowering
In practically every form in which
money is loaned, fixed interest securities
have been unresponsive to those changes
that normally would have carried up
the market foz them an average OF
several points.
The bond market has been a mystery
to those who have studied its symptoms
and trends for years and extremely dis
couraging to banking houses and insti-
tutions through which the major part
Of the new capital issues is distributed,
Causes of Situation.
An effort to find the causes of this
unusual situation develops the following
that may be accepted as partial expla'
nation:
First, that the individual investor haI
abandoned bonds and is waiting fol
| another opportunity to buy stocks when
the business situation becomes normal
Second, that institutions, other than
| insurance companies and savings banks
are still reluctant to increase theii
| portfolio of long-term securities after
| the last years experience with depreci-
ating bonds and have been more in-
clined to earn less on their free funds
| through Street loans and short-term
| paper than to tie up these funds In
long-term commitments.
Third, that the market has had I'd
absorb an amount of new bonds greater
by 40 per cent than in the correspond
ing period of 1929, resulting in consider
able congestion and switching from old
issues into new issues where an increase
in yield could be obtained in the proc.
ess of exchange, and
| Fourth, that prices of corporation
bonds of the better quality have been
fairly high, especially in contrast with
| taX-exempt issues ard also with soma
| grades of stocks that have been marked
down and have reached a good yield
basis and are immune from dividend
reductions.
| Buying Power.
| Normally the buying power in the
bond market came mainly from the in
situations and from the private investor,
! The latter today shows great indiffer-
ence to bonds, and while he may make
subscription to some high-yieldina
new issue, the average bond salesman
nnds him cold to majority of his Of
ferings. He is still definitely deter
mined that common stocks at some
| level, which possibly may not yet have
been reached, will give him from year
to year the highest return on his in
vested capital. Ordinarily his buying
would take up the slack between the
floating supply and the amount abb
sorbed by the institutions. With him
out OF the market, the supply is large
enough to have an effect on prices all
along the line, and If this is a perma-
nent situation 1t will have to be reck-
oned with most seriously by those whose
business 1t is to furnish new capital for
corporations and foreign governments.
IL Is not unlikely that rationing Of
new capital issues will be put into eff.
rect eventually in order to prevent one
OF the greatest handicaps to bond mar
ket ovements-namely. that of a con-
slant oversupply of new issues, which
not only affect these issues, but all
| others with which they come into COM
| petition.
The weekly bank statements indicate
| tnat there has been some expansion In
the purchases of securities by members
OF the Federal Reserve system, and pre-.
Sumably by non-meri1ber banks, but the
total has not been large, in comparison
with other years. It has been primarily
In short-term issues, ranging from three
to six months notes up to one and two
years, with the result that all such is.
sues are now at premium and do not
provide enough margin of earnings over
interest paid to depositors to warrant
further purchases. Consequently, insti-
tutions may be compelled out of self
interest to go into the long-term bond
market. even though they may feel that
prices there are high and that there are
the usual risks of depreciation upon the
return of money rates to a firmer basis
as soon as commercial demands for
funds increase.
| Call Money.
| It Is quite certain that with cab
money in the open market in abundant
supply at 2l2 per cent, time money
ranging between 3 and 31a per cent
and bankers acceptances around 215
per cent, no further official rate re-
auctions would help to lift the invest
ment market from its present apathetic
state. Its technical weakness and its
competition with speculative issues
temporarily, at least, overbalance the
influence of a Superabundance of in
vestment funds.
Nearly $4,000 900 worth of silk stock
| ings were exported from this country
last year.